HMT’s Proposed reforms to the Appointed Representatives Regime

On 12 February 2026, HM Treasury published a consultation setting out proposed reforms to the UK's Appointed Representatives (“AR”) regime (the “Consultation”). The proposals found in the Consultation follow the government's policy statement on its approach to promoting confidence in and safeguarding against abuse of the AR regime.

The AR regime provides a proportionate way for firms to engage in regulated activity without direct authorisation. However, recent FCA supervisory work has identified increased risk of consumer detriment when dealing with ARs, compared to directly authorised firms. While the FCA has introduced enhanced rules and guidance for Principals, the government considers legislative reform necessary to address gaps in the regulatory framework. Notably, the government’s intention is to preserve the broad scope of the AR regime whilst simultaneously strengthening consumer protections.

FCA Permission to Act as Principal

Currently, any authorised firm may appoint an AR without FCA permission. HMT considers this potentially represents a gap in the regulatory framework; while a firm could meet its own regulatory obligations, it may not be capable of supervising another firm’s activities effectively.

The government proposes to introduce a regulatory gateway for firms wishing to act as Principal. This regime will be modelled on the existing gateway for approving financial promotions of unauthorised persons. The FCA will have power to grant permission subject to specific terms or restrictions, and to vary or cancel permission on its own initiative or upon application, where AR activity poses a material risk to consumers.

The government has sought to minimise disruption to existing arrangements. Existing Principals will be deemed to have permission and will not need to apply, although the FCA may vary or withdraw such permission in future. For new firms, the Principal permission will be embedded within the Part 4A authorisation process, avoiding a separate application. Existing Principals of Introducer ARs (“IARs”) whose activities are limited to certain introducing activities may receive a permission limiting it to appointing IARs only, reflecting the more proportionate regulatory requirements currently applicable to that category.

Extending FOS Jurisdiction to ARs

Currently, the Financial Ombudsman Service (“FOS”) can only direct redress steps to be taken for complaints involving ARs where a Principal can be held responsible for the relevant acts or omissions of the AR under section 39(3) of the Financial Services and Markets Act 2000 (“FSMA”) or agency law principles. This presents a potential gap in consumer protection as if a Principal cannot be held responsible, even if the FOS would normally uphold the complaint, it cannot currently directly consider complaints against ARs themselves/apply redress requirements – meaning consumers do not have a similar protection.

The government proposes a targeted extension of the FOS's compulsory jurisdiction to cover any complaint involving regulated activities carried on by an AR, even if a Principal cannot be held responsible. These powers will enable the FOS to apply direct redress measures to that AR – albeit it is emphasised that this is intended to be a measure of last resort and is not designed to diminish the control and oversight duties that Principal firms owe to their ARs.

Complaint handling will remain the responsibility of Principals under the Dispute Resolution and Complaints Sourcebook (DISP 1). However, the FCA will consider whether to require Principals to notify ARs of complaints and ensure AR cooperation with FOS investigations. Where a Principal denies responsibility for an AR's actions, the AR will be joined as a party to the FOS complaint, enabling it to make representations and access determinations.

The government does not anticipate that the extension of FOS jurisdiction will have a material impact on the Financial Services Compensation Scheme (“FSCS”), given the small number of cases where Principals are not held responsible. It is envisaged that this will continue to be monitored to assess the impact of the widened jurisdictional scope going forward.

While this extension appears sensible, with increased accountability for ARs, many are smaller, both operationally and commercially. If held responsible for complaints, either alongside a Principal or on a standalone basis, it remains to be seen whether they would have the financial bandwidth to contribute to a redress scheme.

Discussions on where liability for AR activities sits has been at the fore recently, with significant questions being raised as to the extent to which the Principal can contractually restrict the permissions it gives to an AR and whether this impacts the liability it has for AR actions and omissions in relation to such permissions.

Most recently, the case of KVB Consultants Ltd and others v Jacob Hopkins McKenzie Ltd and others [2024] EWCA Civ 765 held that a Principal cannot narrow the permissions they provide to ARs to artificially to avoid liability to underlying clients – provisions of this nature were seen to operate as a contractual term between the Principal and the AR, but have no effect the Principal’s scope of liability under s39 FSMA. While the above case is awaiting final judgment, the interpretation underlines the overarching message; the default position is that a Principal remains responsible for their ARs, and the authorities will look to protect customers as much as possible from potential gaps in protection.

The changes to FOS jurisdiction will help ensure an expanded scope of protection for customers – ensuring that where a Principal can evidence it should not be held responsible for an AR’s regulated activities, this doesn’t represent the end of potential redress avenues for the customer.  

Bringing ARs within scope of the SM&CR

Authorised firms, including Principals, are currently subject to the Senior Managers and Certification Regime (“SM&CR”), whilst ARs remain subject to the earlier Approved Persons Regime (“APR”). This inconsistent approach for Principals and ARs sets different standards for similar or identical activities and imposes unnecessary administrative burden.

The government proposes to harmonise the frameworks for conduct, fitness & propriety and accountability by bringing ARs within scope of the SM&CR. This aligns with the government's consultation on amendments to the SM&CR legislative framework as part of the Leeds Reforms. Under the consultation, the SM&CR general conduct rules would apply directly to individuals within ARs (excluding ancillary staff). Principals would be required to apply fit and proper requirements to their ARs in accordance with FCA rules. The FCA would also create a new AR Senior Management Function (“SMF”) in Principal firms, ensuring SMFs are held accountable for overseeing the Principal's ARs.

What Next?

The Consultation closes on 9 April 2026. Firms should consider the questions in the Consultation, responding if they wish.

Once responses are considered, the government will publish a more detailed plan and timetable for implementation.

In the meantime, firms should assess the impact of the proposals on their current and planned AR arrangements. Whilst existing Principals would automatically be deemed to have permission, firms should consider whether their systems, resources, and governance are sufficiently robust to withstand future FCA scrutiny.

Principals should review their complaint handling procedures given the proposed extension of FOS jurisdiction. Although Principals will retain primary responsibility for handling complaints, the prospect of ARs being joined to FOS proceedings and potentially subject to direct redress awards underscores the importance of maintaining effective oversight and clear contractual arrangements.

Firms should also evaluate the implications of transitioning ARs from the APR to the SM&CR, including how fit and proper assessments could be conducted for AR staff and whether the introduction of any new SMFs will affect their governance structures.

How can we help?

We are experienced in advising both Principals and ARs, from establishing initial contractual arrangements to ensuring ongoing regulatory compliance in future. We can help you assess how the proposals in the Consultation may affect your business model, governance, and oversight arrangements, supporting you in achieving compliance with the new AR framework once implemented. If you would like to discuss the proposals in the Consultation and the potential impact on your firm, please contact any of the listed individuals or your usual contact at CMS.