Oversight or Overlooked: Do you understand your AR risk?

Following the extension of FSMA in 2005 to align with the incoming EU Insurance Mediation Directive, the Appointed Representatives (AR) Regime has offered an easier and faster route for small insurance intermediaries to enter the market, scale and bring competition, under the supervision of their Principal.  

New rules were introduced in December 2022 to strengthen the regime following analysis by the Regulator which showed AR’s and their Principals were generating approximately 400% more complaints than directly authorised firms and were responsible for 60% of the FSCS compensation payments being made. 

In theory, these strengthened oversight requirements, supported by the FCA’s review of Principal Oversight in September 2024 should leave few SMF’s and/or Principals feeling comfortable with their models.  It was expected that the changing regulatory environment would drive a significant step-change in oversight arrangements to mitigate risk, and yet, significant gaps in Principal firm’s oversight and governance remain evident. And it is not just regulatory risk that firms should be concerned about, in the AR model reputational damage, financial loss, and potentially harm to consumers exists too. 

The biggest question firms need to address is exactly how thorough and robust the oversight is in reality, not what is documented in the contract or policy. Principal Firms usually have onboarding and oversight policies in place, and detailed contracts which require the AR to conduct themselves accordingly, but as with all delegation, the accountability remains with the Principal with the SMF responsible for the conduct of the ARs they oversee. 

Under increasing commercial pressure and faced with a tick-box relationship with their Principal (“no need to show me, just tell me”), AR’s can begin to veer from course, with some typical warning signs easy to overlook at first glance.

Typical indicators of poor conduct often include:  

• Poor record-keeping: Incomplete or outdated due diligence files
• Weak governance: ARs with little evidence of compliance training, consumer protection controls, or complaints handling capability
• Cultural alignment: Showing disdain for the rules in their informal communications 
• Scope creep: Activities undertaken by ARs that stretch or breach their agreed permissions.
• Misaligned incentives: Staff rewarded on revenue, without regard to fair value or customer outcomes, or unclear remuneration plans in general 

The introduction of the Consumer Duty has challenged Principals even further. It requires firms to not just treat customers fairly but actively deliver good outcomes across their distribution chains. As a result, Principals must now ask themselves: 

• Are our ARs selling products that meet customer needs and deliver fair value? 

• Can we evidence that monitoring activity is outcome-focused — not just process-driven? 

• How do we ensure our ARs are clear on their obligations under the Duty? 

• What evidence of Consumer Duty and Compliance have I witnessed?

If these questions trigger your uncertainty, is it perhaps time to review your oversight approach? 

At GreenKite, we work with Insurers, brokers and MGAs to strengthen their AR oversight, helping balance regulatory expectations with commercial realities. We help firms build proportionate and effective oversight frameworks, which work in the real world and deliver real value. Our assurance activities provide detailed analysis for Principals, giving true peace of mind.   

Good AR oversight isn’t just about avoiding regulatory risk, it’s about protecting your brand, your customers, and your future growth. 

If you’re rethinking your AR strategy — or if you’d simply like a second opinion or assurance support, then GreenKite are here to help.