October 2019
By Steven Howard , Head of Mortgage and Lending Intermediaries Compliance Services at SimplyBiz
Whilst forging positive introducer relationships with associated businesses, professionals and individuals that you may deal with on a regular basis can be an extremely effective and profitable way of attracting new clients to your services, care should always be taken to ensure that this is done compliantly.
The interaction of all parties in the fair treatment of customers remains crucial and maintaining a good reputation should be at the forefront of every firm’s minds.
In late 2016, the FCA issued an official notice concerning inappropriate introducer influence and highlighted the risks of not having adequate oversight of a firm’s introducer regime. The regulator had also previously raised concerns around the inappropriate influence that introducers can have upon authorised firms.
When accepting business from an introducer, a principal must meet their regulatory requirements (as set out in the FCA Handbook). In particular, the principal must ensure that they understand and mitigate these risks and that their firm has adequate oversight of its own introducer regime and does not just accept what the introducer passes through to them, otherwise, it may result in the firm and its customers experiencing financial harm (e.g. as a result of a scam).
They also provided an example where the referral from the introducer includes a clear desire expressed by the customer and documentation already completed and this type of example has been a common thread in the feedback we have previously seen from the regulator around introducers.
In short, regulated firms should not be seen as order takers for introducers and should always take time to re-confirm any information that may have been provided directly with the client in order to fully understand the “needs and objectives”. The authorised firm should also undertake their own independent research in order to confirm the appropriate product provider – after all, you are giving the advice, not the introducer!
Another area of the alert focused on the fact that the regulator found a number of cases where Principals were failing to undertake sufficient due diligence on their introducers and that in turn presented risks that customers may suffer financial harm as a result. It also highlighted the fact that firms are not always monitoring the type, volume and source of business being introduced.
The FCA included bullet points for firms to think about in relation to their relationship with introducers and in particularly, we would recommend that firms take time to consider the following ones;
This FCA work is continuing and as we have seen, getting this wrong can result in regulatory challenge, possible censure, fines and reputational damage.
If you are a member that takes FIBA compliance, the relevant documents summarising the FCA requirements can be found in the Compliance Hub under ‘Conduct of Business’.