Thought Leadership

Broker Oversight – Do You Have Effective Risk Management Governance? [10 Tips]

Posted On 10th October 2018


Recent FCA regulation such as the extension of the SMCR has forced the financial services industry to take serious action in tightening their processes from both a Risk Management and HR perspective. Since the financial crash of 2007, the FCA has introduced a series of new legislation and in 2014, the FCA became regulator for the consumer credit industry and introduced the consumer credit ‘CONC’ book.

CONC affects a firms responsibilities regarding the agents and third parties which they use to service their customers (the consumer).

Due to the fact that a lender can be held responsible for the action of their agents and third parties, it is imperative that lender’s take their due diligence towards auditing them seriously. This exercise should be considered a risk issue, and treated with the upmost seriousness, as not performing thorough due diligence could result in huge fines and consequences.

CONC 1.2.2 specifies that a firm must;

  • Ensure its employees and agents comply with CONC; and
  • Take reasonable steps to ensure that other persons acting on its behalf comply with CONC


As a FCA regulated firm, you are responsible for ensuring that all of your third-party agents and brokers comply with CONC regulation. We’ve complied our top 10 tips for Broker Oversight.


  1. Firstly, check the broker is not on the ‘Do Not Deal List’. This can be found here on the FCA’s website. This list is regularly updated and consists of firms which operate without FCA approval. But don’t assume just because a firm is not on this list they are approved, these firms often change their names to avoid detection.


  1. Second, check that the broker is active on the FCA register. This can be found here. The register lists lenders/brokers that are, or have been registered on the PRA and/or FCA register.


  1. Carry out a credit check on 2 of the listed directors of the broker. Due to the SMCR which was implemented in 2016 (and due to be extended in 2019) all firms must have appointed ‘Senior Managers’ who hold FCA approval within a firm to oversee financial conduct. By carrying out a credit check on these individuals you can ensure that they fit the bill to be your broker.


  1. Google – by searching for the name of the potential broker in a search engine you may uncover some bad PR or adverse information that could negatively affect your reputation, better to know beforehand than too late.


  1. Check the amount of time a firm has been trading for, CONC specifies that due diligence should be carried out to ensure than all brokers have a minimum of 3 years Trading (you can find this on the companies house website here.


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  1. Enquire about the potential broker’s risk and compliance procedures, ensure that they have the required systems and controls in place to sufficiently act as a broker, make sure that their standards match up to your firms.


  1. Investigate the major shareholders within the broker firm. As with tip number 4, ensure that your brand is safe, and no negative PR could come out of you dealing with the broker. Make sure that all shareholders are people/companies that you’re happy to do business with.


  1. Carry out a criminal record check on 2 of the listed Directors of the broker. A criminal record may not result in an entire write-off of the broker, but it is important to research and assess the crime and make an educated decision of whether to pursue your relationship with the broker.


  1. Check for detail – when drafting any agreement between yourself and a broker, ensure that the detail is there. You run a higher risk of your relationship being investigated by the FCA if the detail in your agreement is sparse and non-specific. Less detail = more risk.


  1. Ensure that there is an extensive complaints process in place which ensures all customer complaints are handled in an adequate fashion to help minimise any negative PR against your firm.


As a FCA regulated firm, you must have adequate processes in place to evidence good governance and compliance over your agreements and broker relationships, as well as all risks within your firm. The most effective way to do this is with GRC RegTech software (you can find out more about Arctick’s award-winning solution here). All of your broker oversight findings and due diligence can be compared against your firms risk appetite using the Arctick solution. If you’d would like to see a demo of how this works – complete the form below and we’ll get right back to you.

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