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Glossary

Principal firm

The principal is the authorised firm that appoints an AR and accepts responsibility for it in writing. It must hold the permissions that cover what its ARs do, and must oversee them as if their business were its own. Responsibility for controlling and monitoring ARs rests with its senior management (SUP 12.6.7G).

Before appointing, and continuously

  • The activities in an AR's appointment must fall within the principal's own permission (SUP 12.4.1AG).
  • The principal must establish on reasonable grounds that its threshold conditions are not compromised, the AR is solvent and suitable with no obstructive close links, the principal has adequate controls and resources and is ready and organised, and the AR's activities do not create undue risk of harm (SUP 12.4.2R).
  • Oversight should be equivalent to what would apply if the business were carried on by the firm itself and the AR's people were its employees (SUP 12.4.4BG).

Oversight in practice

  • Collect and scrutinise MI in an agreed format, analyse it for emerging risks, monitor how the AR delivers, engage regularly, and set escalation with severity grades and remediation timeframes (SUP 12.4.4GG).
  • Where the conditions are not met, or are likely not to be, the principal must take immediate steps to put it right or terminate, and tell the FCA (SUP 12.6.1R, SUP 12.7.8R).
  • A significant failure of AR oversight systems and controls is notifiable under Principle 11 (SUP 12.7.9CG).

Common misconceptions

“Outsourcing compliance monitoring moves the responsibility.”
The FCA is explicit that the principal remains ultimately responsible for overseeing its ARs even where monitoring is outsourced.
“Due diligence can rely on a previous principal or employer.”
The FCA says relying on confirmation from a previous employer without your own assessment and checks is not enough.

In Merrin

Merrin gives the principal one view across the network: risk by firm, open issues, overdue returns and reviews awaiting sign-off.

Monitoring & issues

Sources

Checked against these sources on . This is general information, not legal advice.

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