YOUR COMPLIANCE MATTERS – HMT Consultation Appointed Representatives
Relevance: All firms with (or planning to have) Appointed Representatives
Action required: Consider future barriers and current oversight arrangements.
On 11 August 2025, the UK finance ministry, HM Treasury (HMT) published its policy statement (PS) on changes to the UK Appointed Representatives regime. The PS is the response to an earlier Call For Evidence published in December 2021, which set out a range of potential reforms to the existing appointed representatives (AR) framework.
The good news is that the AR regime is being retained, which will come as a welcome relief for the industry following initial speculation that it might be abolished entirely. However, HMT has also confirmed in the PS that there will be two key changes to the current AR framework (subject to appropriate primary legislation being enacted and where necessary, the regulators updating their rules):
- In the future, UK authorised firms who wish to act as the principal for an AR will need to obtain permission from the UK Financial Conduct Authority (FCA) to do so. This is designed to ensure that the principal firm can demonstrate that it has appropriate resources and expertise to be able to exercise effective oversight over any ARs it appoints. HMT states that firms which already act as principals for ARs before the changes are implemented will not need to apply for the new permission (which presumably means that there will be some kind of grandfathering regime in place, but the details of this are expected to follow in due course).
- The jurisdiction of the UK Financial Services Ombudsman (FOS) will be extended to allow the FOS to investigate an AR directly where the AR is acting outside the scope of business for which its principal firm has agreed to be responsible, and the principal firm is not at fault.
The timing of the implementation of these reforms is currently unclear. We do not expect the required primary legislation to come into force until 2026 at the earliest.
What is the background to the AR regime and the latest reforms?
The AR regime provides a statutory exemption from the general requirement that a person who carries on regulated activities by way of business in the UK must be authorised to do so.
ARs are exempt from the authorisation requirement because an authorised firm (the principal) will have entered into an express written agreement with the AR to accept responsibility for the regulated activities the AR carries on.
The principal firm may be authorised by the FCA or the UK Prudential Regulation Authority or otherwise authorised through another mechanism provided for in the Financial Services and Markets Act 2000.
The regulated business that can be carried on by an AR under the exemption is limited to a specific list of regulated activities set out in secondary legislation.
The permitted activities include, for example, dealing as agent in investments, arranging activities, various advising activities and credit broking. The AR's agreement with the principal must specify the activities for which the principal is accepting responsibility and in relation to which the exemption from authorisation will therefore apply.
The AR regime is commonly relied upon to avoid the need for the entity acting as AR to be authorised by the FCA. Obtaining and maintaining authorisation can be expensive and time-consuming. In particular, ARs are commonly used in "hosting" services (where authorised third-party providers may provide temporary or long-term solutions to allow new market entrants to carry on regulated business in the UK so that they do not need to wait for FCA authorisation), as well as in intra-group contexts (thereby avoiding an unnecessary proliferation of regulated entities in the group).
In the retail sector, AR structures are also commonly used to facilitate networks of independent investment advisers, so that each adviser does not require separate authorisation, and their use is also widespread in the consumer credit and insurance distribution markets for similar reasons.
Despite these benefits for market participants, the AR regime has come under increasing scrutiny in recent years, with concerns that the use of ARs has become wider than was initially anticipated when the exemption was first introduced.
There is also concern that perceived lax oversight by a principal firm could lead to substantial consumer harm and that it may be difficult for consumers to act against an AR, who may in any case lack substantial resources to pay redress. The FCA has in recent years restricted some principal firms from appointing new ARs.
