The appointed representatives regime has been around longer than many of us might realise, having been introduced in 1986, and so predating our beloved Financial Services and Markets Act 2000 (FSMA) by some years. No doubt, it seemed like a sensible proposition: a cost-effective way to provide financial services for those without the inclination or resources to seek authorisation, under the sheltering umbrella of a regulated principal. And firms would, of course, take their responsibilities as principal very seriously, given that they were, and are, liable for the acts and omissions of their appointed representatives (ARs) (and were charging their ARs for the privilege of being appointed).
Or not...
An increase in cases against principals for AR management failures did not lead to any marked improvement. As a result, when the FCA found “significant evidence of harm” caused primarily by principals failing to conduct adequate due diligence and properly control and oversee AR activities, it introduced new rules. The rules, which came into force on December 8, 2022, are designed to ensure that principals have strong and effective oversight of their ARs. They tackle both the principal–AR relationship and the principal’s internal governance framework. This should have fixed things, and so it is disappointing that we still regularly see examples of principals falling short of the regulatory requirements.
HM Treasury recognised that rules alone were not going to solve this issue and so, against that backdrop, we now have its policy statement, published on August 11, 2025, on further changes to the regime. It is clear that the AR regime is seen as something which promotes competition, supports innovation and contributes to economic growth—something of a bingo full house for HM Treasury these days. But it is also clear that the recent FCA rule changes have not had enough impact, and that further action is needed. Two significant gaps are now under the spotlight, with plans to plug them.
Two gaps
The policy statement calls out two key gaps in the existing framework: At present, any authorised firm can appoint an AR. There are specific rules about resources and the ability to manage ARs but, currently, there is no assessment as to whether a firm should be permitted to do so. This is slightly odd, especially when specific permission is needed to enable a firm to sign off third-party financial promotions. At present, any authorised firm can appoint an AR. There are specific rules about resources and the ability to manage ARs but, currently, there is no assessment as to whether a firm should be permitted to do so. This is slightly odd, especially when specific permission is needed to enable a firm to sign off third-party financial promotions.
Proposals
"Principal permission" gateway
The policy statement proposes requiring principal firms to hold a distinct permission to act as principal. The legislative change would amend section 39 FSMA, so that the AR exemption is only available where the principal holds this permission. This is similar to the approach taken by the financial promotions gateway, where section 21 FSMA was amended so that authorised persons wanting to approve financial promotions would need to apply to the FCA for permission to do so. However, unlike the financial promotions gateway, and to avoid existing ARs finding themselves unable to trade while principals obtaining the new permission, the plan is for existing principals to be grandfathered. Only new authorisation applicants would need to request the permission as part of the Part 4A authorisation process (in the policy statement, it is not clear whether or not a variation of permission will be required if a currently authorised firm wishes to appoint an AR for the first time after the new rules come in, but that would seem sensible). While business and disruption drivers for the grandfathering approach are clear, it does mean that, potentially, an opportunity to address the issue of underperforming existing principals is being missed. There is also a risk that new ARs could be driven into the arms of poorly managed (but already-authorised) principals, if the effort of applying for the principal permission at authorisation dissuades firms from doing so, or the incremental costs of obtaining the permission are passed on in higher fees charged by the principal. The FCA will be able to limit, vary, or revoke the permission to reflect scale, business lines or risk profile—so existing principals won’t be able to rest on their laurels indefinitely if they come onto the FCA’s radar, either as a result of supervisory or thematic work.
Extension of FOS coverage
The policy statement proposes that the FOS will obtain compulsory jurisdiction to investigate complaints directly against an AR where it decides the principal bears no responsibility for the activity in dispute. This won’t dilute the principal’s primary liability for matters that fall within the scope of the AR agreement—it merely prevents a “remedy dead end” for consumers when the principal cannot be held accountable. This should provide universal access to the FOS for all retail clients engaging with regulated activities, irrespective of whether those activities are undertaken by an authorised firm or an AR. This has fairly significant implications for principals and ARs alike. Where a principal is not responsible for the AR’s activities, the FOS will be able to direct redress against the AR itself. For principals, a principal must take all reasonable steps to ensure that its AR is only carrying on regulated activities to which the principal (or another principal in the case of multi-principal arrangements) has agreed, in accordance with the FCA rules. Failure to do so, for example where an award is made directly against an AR for activities not covered by the principal, may call into question the effectiveness of the principal’s governance and oversight of its AR. When is it all happening?
Not fast, is probably the best answer. Both measures require changes to primary legislation and HM Treasury says that it will only be delivered once an “appropriate place in the legislative programme is found for this reform”. There is no reference to these changes being urgent. Looking at how long it took to deliver the regulation of buy now, pay later, does 2028 sound overly optimistic?
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