HM Treasury unveils landmark overhaul of the Appointed Representatives Regime

Currently, any authorised firm can act as a principal without obtaining additional permission. HMT considers this a significant regulatory gap, particularly given inconsistent standards of AR oversight across the market.

HMT therefore proposes to introduce a new regulatory gateway, similar to the financial promotions gateway, under which a firm would need FCA permission before acting as a principal.  

The FCA would be able to:

• grant or refuse permission;
• limit permission (for example, to Introducer ARs only);
• impose restrictions; and
• vary or cancel permission where needed.

This gateway would provide the FCA with a specific mechanism to scrutinise prospective principals and ensure they are suitable because they have the necessary expertise, resources and systems in place to provide effective oversight of ARs. 

Although section 39 of FSMA will not be amended to make this permission a statutory condition of the exemption, a principal acting without the required permission will be in breach of FCA requirements, enabling the regulator to pursue enforcement action. By empowering the FCA to vary or withdraw permission to act as principal, the FCA would be able to take swift action in a more targeted way to limit or stop AR activity which might pose a material risk to consumers.

HMT also intends to transfer detailed contractual and register requirements from statute into the FCA Handbook, improving coherence and allowing the FCA to tailor the rules more flexibly.

Existing principals will be deemed to have the new permission, enabling continuity and avoiding market disruption. However, the FCA may later vary or withdraw deemed permissions, which may particularly affect large principal networks.

A key question will be how the FCA operates this gateway in practice, including how supervisory data will support proportionate and consistent decision-making. 

The FOS provides consumers and firms with a quick and cost-effective way of resolving disputes. However, at present, the FOS can only consider complaints involving ARs where the principal is legally responsible for the AR’s conduct, either under section 39(3) of FSMA or general agency law. Where the AR acted outside the scope of the principal’s responsibility, affected consumers currently fall outside the FOS’ compulsory jurisdiction.

HMT proposes to extend the FOS’ compulsory jurisdiction so that the FOS can consider complaints directly against ARs where: 

• the conduct relates to activities undertaken while the person was an AR; and
• the principal firm is not responsible for the relevant acts or omissions.

This change is deliberately narrow and is intended to function as a last‑resort mechanism, without diminishing the principal’s duty to maintain effective oversight of its ARs. In the vast majority of cases, the FOS will continue to consider complaints against the principal. However, the change will mean that consumers of regulated financial services, whether dealing with an authorised firm or an AR, have access to the FOS on a consistent basis. 

Authorised firms receiving customer complaints must handle them in accordance with the FCA’s complaint handling rules. Although these will not be extended to apply to ARs, the FCA may consider amendments to ensure that where a complaint relates to the conduct of the AR, the principal will make the AR aware of the complaint, and to place an obligation on the principal firm to ensure that its AR cooperates with the FOS. Updated AR agreements will therefore need to reflect these obligations.

HMT recognises the importance of the AR to have the ability to make their own representations to the FOS where the principal firm disputes responsibility for the AR’s conduct. HMT therefore anticipates that the FOS will make Scheme rules which ensure such an AR is joined as a party to the FOS complaint. In those exceptional cases where the FOS determines that the principal is not responsible for the AR’s actions, the FOS will commence consideration of a complaint against the AR. Should the FOS uphold the complaint, the FOS will be able to make the same sort of awards and/or directions in respect of the AR that it would be able to make against an authorised firm. 

On redress, HMT acknowledges that some ARs may lack financial capacity to meet FOS awards, which could lead to additional Financial Services Compensation Scheme (FSCS) claims if AR failures occur. However, the occurrence of such cases is historically very low, and HMT does not propose changes to the FSCS framework, though it will monitor the impact.

ARs are currently subject to the old Approved Persons Regime, while authorised firms (including principals), are supervised under the SM&CR. HMT views this dual‑framework approach as inconsistent, burdensome, and increasingly outdated.

Under HMT’s proposals:

1. SM&CR Conduct Rules will apply directly to individuals within ARs (except ancillary staff), meaning relevant individuals in both principal firms and ARs, would be required to meet the same baseline conduct standards
2. Principals will be required, through FCA rules, to undertake fitness and propriety assessments in respect of their ARs
3. The FCA may introduce a dedicated AR Senior Management Function within principal firms, reflecting the responsibility principals assume when appointing ARs and ensuring senior managers can be held accountable for AR oversight

In practice, this would eliminate the need for FCA approval of many AR roles, currently around 38,000 individual approvals, and create a more coherent, consistent framework for conduct and accountability across the market.