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The City regulator took over from the Office of Fair Trading in January 2015 and new structures and licenses emerged for practicing.

Whether selling insurance, loans or mortgages in store or online, companies have to apply for an FCA license which can typically take between 12 months to 24 months and require a minimum investment of £1,500 to £25,000. This process can be fast tracked by working with a proper FCA compliance company, although this may come at an extra cost.

For many companies or start-ups, the application process and time becomes a significant barrier to entry to doing business. Subsequently some individuals or firms look to act as an 'appointed representative' which allows them to essentially go under another company's 'umbrella' and carry out regulated activity on their behalf.

The process to become an Appointed Representative or AR can take only around 10 to 14 days, hence it is seen as a viable alternative to getting full permissions. The individual or company acting as an appointed rep will typically pay a licensing fee to the parent company each month or offer a share of profits.

What can an AR do?

An appointed representative can still fund and introduce loans, possibly suitable Payday Loans also and policies like a regular provider. However, all the responsibility falls under the main license holder - so it is their responsibility that the agent is acting according to regulation and fulfils their compliancy requirements. The AR has to disclose all their records, processes and revenue to the principal - so there is a bit of micromanaging involved.

One thing that an AR cannot do is have other people or firms under its own umbrella, this is not feasible.

In addition, an AR does not have permission to store data as this is only something a principal can do. Similarly, they cannot manage investments which is a limitation for investment or fund managers.

What are the risks?

The main risks are on the principal firm who has the operating license. Since the AR is their responsibility, failing to comply with regulation can lead to heavy fines, prosecution or removal of their license. This can still be the case even if the main operator has traded compliantly, but they have to monitor the work of their AR's carefully.