How Appointed Representative networks could be vulnerable to a lead-gen blindspot

By Thomas Brett, Head of Mortgage and Lending at Contact State,

Recent changes to the upcoming Online Safety Bill mark the latest step in a tightening regulatory regime for online financial services advertising. Thomas Brett, Head of Mortgage and Lending at Contact State explains how new financial promotion rules being rolled out by government and big tech are set to affect large Appointed Representative (AR) networks – and how new digital compliance solutions can help firms stand up to increased regulator scrutiny.

At Contact State we’ve closely followed the new ad verification rules introduced by Google, meaning anyone advertising financial products will need to be FCA-registered or use the FCA number of a registered firm. This is, in a majority of cases, the lead buyer’s FCA number.

This is a great step forward in ensuring customer journeys are the safest they can be. By ensuring the lead buyer is also liable for the compliance and oversight of advertisements seen by the customer on their way to regulated advice, makes sure there is full accountability for those engaged in fraudulent lead generation activity, and avenues of support for consumers who fall victim.

With social media sites also following hot on the heels of Google to introduce rules requiring lead generators to be regulated or work with a regulated firm, the FCA and ICO are closing the loopholes that have traditionally been used to generate cheaper, less compliant leads to sell on.

Whose liability is it anyway?

Yet as these new rules come into force, they shine light on a potentially huge ‘blind spot’ in the financial advice sector. Large AR networks of financial advisers and mortgage and equity release specialists charge for membership, which in turn covers compliance oversight and insurance costs, enabling advisers to work in regulated environments under the network’s FCA number. Any fraudulent activity on the customer journey puts the network at risk of falling foul of the regulator’s rules, incurring reputational damage or worse, hefty fines.

The ICO has also now started to focus on the lead generation space during the first quarter of 2022, and we can expect these rulings and fines to ramp up in volume as we move through the year. A recent example saw five companies fined a total of £405,000 by the ICO for making unwanted cold calls to elderly customers without permission. Without oversight at every stage of the process, networks can’t prove they have that permission.

The tip of the iceberg for ARs

This in turn means there is a potentially significant number of lead generation firms working under a network’s FCA number without their explicit consent or more importantly, their oversight on advertising campaigns and landing pages. With some networks estimated to have over a thousand ARs, the scope of this latest regulatory challenge is significant.

The FCA consultation paper estimates the number of ARs in the UK to be 40,000, so this early attention could just be the beginning. Indeed, the stakes could rise if the FCA and ICO seek to crack down and punish infringements at the network level, or investigate more thoroughly once a non-compliant landing page is discovered.

A top-to-bottom threat

More oversight and due diligence will be required by AR networks to make sure they are fully covered, and their customers are protected. However, this will take a significant effort and investment of time and capacity, as lead generators can use 50-plus different landing pages and journeys for each campaign.

The knee-jerk reaction would be to ban ARs from using external marketing campaigns to generate leads, but this will remove a significant, integral part of many adviser’s businesses and lead streams. This is not the answer, especially when there are alternative options available to ensure lead generation can occur in a safe and compliant manner.

Full transparency is possible

There are now new compliance-focused digital solutions developed specifically to tackle these regulatory challenges. These enable AR networks to establish end-to-end visibility into all sellers and campaigns being used for their members. As a result, only approved landing pages that are fully compliant can send leads to their ARs. Many of these solutions also support quarterly audits running directly into the risk team, providing proof they are working hard to ensure all customer journeys are safe, compliant, and present minimal risk – from start to finish.

A compliant future for AR networks

Outside of industries such as financial services, FCA regulation is also broadening to tackle issues in sectors such as funeral planning. As scrutiny tightens across the board, networks will need to establish digital solutions to simplify the compliance process.

Acting to digitise oversight and compliance operations at the earliest possible stage will help provide peace of mind for network principals and their ARs, marking a major shift away from compliance uncertainty and the former burden of manual reviews and confirmation.