The Financial Conduct Authority has launched a consultation aimed at “improving the appointed representative’s regime and tackling harm from this model,” following a report by MPs on the collapse of supply chain finance firm Greensill Capital.

The City watchdog says it is seeing “a wide range of harm across all sectors” from appointed representatives who carry out regulated activity on behalf of firms it authorises.

It adds: “This harm often occurs because principals don’t perform enough due diligence before appointing an appointed representative, or from inadequate oversight and control after an appointed representative has been appointed.”

The FCA proposes changes that would improve authorised firms oversight of appointed representatives and require these companies to provide it with more information on their appointed representatives, allowing the watchdog to spot risks more quickly.

The regulator adds: “It will also expect appointed representatives to be more effectively overseen by their principals.”

It will also seek views on the wider risk posed by some of the business models operated by authorised firms, “and whether setting limits on such arrangements may help to reduce potential harm”.

FCA says its data analysis shows that, on average, authorised firms generate 50% to 400% more complaints and supervisory cases than non-authorised firms across all sectors where this model operates.

The move follows a Treasury Select Committee report in July on the collapse of Greensill Capital.

The London-based firm, run by Australian businessman Lex Greensill, collapsed in March after its insurer refused to renew cover for loans the company had made. The finance business employed former UK Prime Minister David Cameron who unsuccessfully lobbied the Treasury on its behalf.  

Greensill Capital was not regulated by the FCA, but used appointed representatives when it needed to undertake regulated activities.

The MPs report, called Lessons from Greensill Capital, said: “The committee concludes that firms may be using the appointed representative’s regime for purposes well beyond those for which it was originally designed. 

“It recommends that the FCA and Treasury consider reforms to the regime, with a view to limiting its scope and reducing opportunities for abuse.”

The FCA says: “We welcome this recommendation and have committed to reviewing the use of the regime as a business priority.”

FCA executive director for consumers and competition Sheldon Mills adds: “The appointed representative model helps bring choices to consumers, but the level of harm we are currently seeing is too high. There are real risks of consumers being misled and mis-sold with little scope for recourse.

“We have already started work looking at high-risk appointed representatives and these proposals build on that work. We want to ensure that principals are properly overseeing their appointed representatives, ensuring they are competent, financially stable and delivering fair outcomes for consumers.”

The FCA’s consultation closes on 3 March 2022.