HMT proposes to overhaul the Appointed Representative Regime

An appointed representative (AR) is a person who carries on regulated activities under the responsibility of an authorised firm (the Principal). ARs are exempt from the ‘general prohibition’ pursuant to section 39 of FSMA – they do not need to be authorised by the FCA.

Robust oversight by the Principal is therefore central to the safe operation of the regime. Just over 4 years ago, the FCA introduced rules to address potential risks of harm to consumers and markets arising from the AR regime. The Government considers that reform of the overall legislative framework is now also needed to provide the FCA with more effective means of preventing misconduct. Key changes are set out below.

 

New ‘gateway’ to act as Principal

The Government is proposing to require authorised firms to apply for permission to act as Principal. This will give the FCA a specific mechanism to scrutinise prospective principals and ensure they suitable. FCA powers to vary or cancel permissions will also apply. Current legislative requirements relating to the contractual relationship between a Principal and their AR, inclusion of an AR in the FS Register will be set out in FCA rules to give the FCA flexibility to tailor those requirements, as necessary. 

The use of ARs is widespread. According to HMT there are c. 34,000 ARs used across the financial services sector for a wide range of services. To prevent the disruption of business, existing Principals will not have to apply for the new permission – they will be deemed to have that permission and will be able to maintain their existing AR appointments. However, the FCA will have the power to vary or withdraw such permission if it proves necessary to maintain high standards and protect consumers.

 

FOS to have jurisdiction over ARs

Currently, the FOS may only consider complaints involving ARs where the AR’s principal is responsible for the conduct in question. Where responsibility cannot be attributed, consumers are left without compulsory FOS protection. HMT recognises that this scenario arises in a relatively small percentage of FOS cases, the Government’s view is that it is unfair to leave consumers in these cases without access to the FOS to resolve disputes.

Therefore, the Government is also proposing to change the FOS’ compulsory jurisdiction to ensure that the FOS can consider any compliant involving regulated activities carried on by an AR.

• In cases where the FOS determines the Principal is responsible for the misconduct, the Principal will be liable for any redress measures imposed. 
• In cases where the Principal cannot be held responsible, the FOS will be able to consider the complaint against the AR and direct any redress measures to the AR. However, this does not mean that the Principal can ignore its obligations under the FCA’s complaints handling rules and would still have deal with customer complaints arising from the activities of their ARs.

 

ARs to be bought within the scope of the SMCR

The Government considers that it would be advantageous for Principals and their ARs to operate under the conduct, fitness & propriety and accountability frameworks and is therefore proposing to bring ARs under the scope of the SMCR.  This would mean:

• The SMCR general conduct rules would directly apply to all individuals in an AR (except ancillary staff) or individuals who are themselves ARs;
• Principals would be required by the FCA to apply fit and proper requirements to their ARs; and
• The FCA would have the ability to create a new dedicated AR SMF in Principals to reflect the responsibility that the Principal has for its ARs.

 

Timing

The consultation closes on 9 April 2026. Changes to the legislative framework is required and once changes have been made, the Government, FCA and the FOS will set out a more detailed plan and timetable for implementation.