(Reuters) – The business model used by the collapsed supply chain finance company Greensill Capital is causing a "high level of damage" and stricter rules are needed, the UK Financial Conduct Authority said on Friday.
The watchdog submitted proposals for public consultation lessons learned from Greensill, which collapsed in March, leaving investors with losses of about £ 1 billion ($ 1.326 billion).
Originally introduced in 1986 for sole proprietorships or small businesses selling insurance services, the regime allowed Greensill to operate in the UK without a license to conduct millions of pounds of business.  There are approximately 40,000 ARs under 3,600 principals in lending to l private individuals and insurance. Some ARs are headquartered outside the UK, which may be an attempt to gain access to UK markets without a license, said the FCA.
"The designated representative model helps give consumers choices, but the level of harm we currently see is too
"There are real risks of consumers being misled and sold wrong with little room for recourse."
About 60% of complaints are handled by Financial Services Compensation Scheme involves principals and AR.
The FCA said that damages occur because principals do not properly review ARs before addressing them and then monitoring them.
The watchdog suggested that principals provide FCA with much more detailed information on an AR's regulated and unregulated activities, revenues and history of complaints.
The rule change will apply to existing AR and new ones.
The Swedish Competition Authority also if the company is fixed. s that host AR should hold more capital, given that some have hundreds or even thousands of AR. There may also be limits to the size or even a ban on certain ARs.
The FCA is already investigating Greensill Capital and its principal, Mirabella Advisers LLP, as part of a global regulatory investigation.