The FCA has published a press release on the responsibilities of investment advisers and authorised firms when accepting business from unauthorised introducers/lead generators and/or other authorised firms (introducer). The press release explains that an authorised firm which accepts business from an introducer must meet its regulatory requirements. If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible for this and be subject to regulatory action.
The FCA is concerned at the increase it has seen in cases in which the introducer has an appropriate influence on how the authorised firm carries out its business, in particular where the introducer influences the final investment choice. The FCA also has concerns where the authorised firm delegates regulated activities, for example by outsourcing their advice process to unauthorised entities or to other authorised firms that do not have the relevant permissions, or are not their appointed representatives.
Many authorised firms the FCA has visited do not have adequate input or control over the advice they are ultimately responsible for giving to customers. The FCA explains that this has been particularly evident in relation to advice on switching and transfer/conversion of pension benefits.
The FCA has explained some specific areas of concern in its press release and has also provided guidance on the warning signs an authorised firm should look out for if it is accepting customer introductions from introducers. For example, does the introducer influence the final investment choice or directly benefit from the resulting investment?
The FCA has listed the steps that authorised firms should take as a result of the press release. In summary authorised firms should:
- carry out robust due diligence on the introducers they transact with
- have in place a robust vetting procedure to ensure the introductions have been sourced legitimately
- regularly review and ensure their systems and controls are adequate to demonstrate they have full and complete ownership of the advice they are providing
- only recommend products they understand fully
- provide independent advice to customers introduced
- don’t allow another entity – regulated or not – to use their Firm Reference Number on their behalf unless they are satisfied they are doing so appropriately
- only delegate the performance of regulated activities to other authorised firms that have the required permissions or who are their appointed representatives, with appropriate monitoring.