The Financial Conduct Authority has identified "serious and widespread" issues on the oversight of appointed representatives.
In a report issued today, the watchdog found that in a third of firms it identified in a survey there were "examples of potential mis-selling and customer detriment as a result of ARs' actions, with most of these issues not previously identified by the principal".
The FCA has stopped five firms from taking on new appointed representatives, and suspended the activities of appointed representatives of two of the firms.
Jonathan Davidson, director of supervision - retail and authorisations at the FCA said: "While some principals did have a good understanding of their appointed representatives' activities and their obligations as principal firms, we found widespread examples of poor practices across the sector.
"In many cases firms were simply failing to understand and manage the risks arising from their appointed representatives' activities.
"General insurance is a large and important sector and we are concerned about the potential for customer detriment arising from the lack of oversight of appointed representatives. All principal firms need to consider these findings and look again at their practices."
