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.
In this briefing, we set out the background to these latest reforms, their key practical implications and the anticipated next steps.
1 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 take action 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.
The government views the Appointed Representatives regime as playing an important part in the provision of UK financial services, delivering a range of benefits to businesses and consumers. The regime provides a proportionate and cost-effective way for firms to engage in regulated activity without being authorised, allowing a broader range of providers to enter the marketplace. In doing so, the AR regime promotes competition, supports innovation and contributes to economic growth.
HM TREASURY
As a result, in December 2021, HMT published its Call for Evidence, which set out potential reforms to the AR regime. Options that were mooted at that time included:
- Changing the list of permitted regulatory activities in
relation to which the AR exemption applied;
- Placing more direct regulatory obligations on the AR (rather
than relying on rules that apply to the principal firm in respect
of its supervision of the AR). This included a suggestion that the
FCA's Senior Managers and Certification Regime could be
extended to apply directly to ARs;
- Introducing a new "principal permission" gateway,
which would require the authorised principal firm to obtain a
specific permission from the FCA before it could appoint an AR;
and
- Making the principal firm responsible for all regulated activities of an AR (even if those activities went beyond the regulated activities that the AR was permitted to carry on under its agreement with the principal) so that the FOS could require the principal firm to pay redress to a consumer for loss arising in relation to any such activities.
2 What changes has HMT confirmed and what will be the likely impact for firms?
Fortunately for the industry, in the PS, HMT has decided not to proceed with many of the potential changes in the original Call for Evidence. In part, this may reflect the current broader focus of the UK government on targeted reduction of regulatory burdens for the financial services industry, as well as a concerns that drastic changes to the scope and operation of the AR regime may be too disruptive to existing market structures.
Instead, HMT has confirmed that it will proceed with only two key reforms:
- It will introduce a requirement for principal firms to obtain a
specific permission from the FCA before they are able to appoint
ARs; and
- It will extend the jurisdiction of the FOS to allow the FOS to investigate cases where the AR acted outside the scope of the agreement with the principal firm and carried on other regulated activities, and the principal firm was not at fault.
However, HMT has not yet published draft legislation to give effect to these changes, meaning that the precise technical details of the reforms are still to be confirmed.
THE NEW PERMISSION TO ACT AS THE PRINCIPAL OF AN APPOINTED REPRESENTATIVE
The introduction of the new FCA permission to act as the principal of an AR is similar in structure to reforms introduced by HMT and the FCA in February 2024 in relation to the financial promotions gateway. HMT emphasises in the PS that the AR regime is based on the ongoing supervision by the principal firm acting as an effective substitute for direct supervision by the regulator. Accordingly, the FCA needs confidence that the principal firm has the resources, expertise and controls to undertake that oversight role effectively.
However, the new permission framework raises several potential issues:
- The principal firm will need to identify sufficiently in
advance that it will be acting as a principal to an AR so that it
has time to obtain the required FCA permission. This may negate one
of the key benefits of the existing AR regime, which is its
flexibility, allowing authorised firms to offer quick solutions to
unforeseen circumstances where a party needs to carry on regulated
business. Although in theory, a firm could apply for the permission
to act as a principal without intending to operate a specific AR
arrangement at that time, in practice, the FCA is increasingly
seeking to crack down on unused regulatory permissions and
therefore the extent to which the regulator would permit this is
unclear.
- HMT states that the FCA will have the ability to impose
limitations or conditions on the grant of any permission, as well
as the ability to vary or revoke the permission in the future. This
means that even if a firm is granted the relevant permission, it
may find that the scope of the resulting permission is limited.
Although HMT does not give specific examples of the sorts of
limitations or conditions that it envisages the FCA might impose,
it seems likely that this could include restrictions on the type of
regulated business for which the principal firm can assume
responsibility under the AR arrangement, as well as restrictions on
the type of clients for whom such business can be conducted. Firms
may need to think carefully about any proposed limitations or
conditions at the point of applying for the initial permission, as
needing to wait for a later variation of the permission may
significantly impact the timeline for putting in place a subsequent
AR arrangement.
- The precise detail of how the regime will operate in practice
is unclear. HMT states that it will work with the FCA to develop a
detailed proposal for the design and implementation of the new
permission framework and will consult on this in due course. It is
possible that the FCA may look to introduce new rules for firms
that have such a permission (for example, in relation to periodic
reporting, disclosures or payment of FCA supervision fees).
- While we will need to wait to see the proposed detailed framework, there is no suggestion in the PS that the regime for intra-group AR relationships would be any more "light-touch" than arrangements between a principal firm and an arm's length third-party AR. When HMT and the FCA consult on the detailed proposals, firms and industry associations may wish to consider whether to advocate for a proportionate intra-group regime.
HMT has confirmed that the new permission framework will be embedded in the authorisation process for new firms. Therefore, a firm which is applying for new authorisation and which intends to act as a principal to an AR will be able to wrap its application for AR principal permission into its broader application and will not need to follow two separate processes.
GRANDFATHERING ARRANGEMENTS FOR EXISTING PRINCIPALS OF APPOINTED REPRESENTATIVES
HMT has confirmed that it does not intend to require firms which currently act as principals for ARs to apply for the new permission. This presumably means that some kind of automatic deemed permission or grandfathering regime will apply.
However, it seems highly likely that the FCA's powers to vary or revoke the principal permission will still apply to any firms that benefit from such grandfathering arrangements (and therefore if the FCA has concerns around an existing principal firm, this could manifest itself in new limitations or permissions once the new regime comes into effect).
Firms should monitor for any further details of how any grandfathering arrangements will operate in practice, which may be contained in HMT's draft legislation or in rule changes proposed by the FCA in due course. For example, it is possible that firms might need to notify the FCA by a specific date that they intend to rely on the grandfathering provisions.
EXTENDING THE JURISDICTION OF THE FOS
The proposals relating to the extension of the FOS's jurisdiction are less likely to be relevant to firms with ARs which are active only in the wholesale markets. This is because the underlying customers of the ARs are unlikely to be "eligible complainants" who have the right to refer a case to the FOS for investigation.
However, in summary, HMT has now confirmed that the scope of the FOS's jurisdiction will be extended to allow the FOS to investigate the AR itself where the AR has acted outside the scope of its agreed arrangement with the principal firm and the FOS concludes that the principal is not responsible for the AR's actions. Where the FOS upholds a complaint against the AR, the redress award may be made against the AR itself. This will apply only in cases where the principal firm is found to have taken all reasonable steps to ensure that the AR is carrying on only activities for which the principal has agreed to be responsible. Where the principal firm is at fault, the FOS would still investigate and make an award against the principal instead.
3 What are the next steps?
HMT states that the UK government intends to consult on the details of the two identified reforms in due course. We therefore expect that HMT will publish draft legislation to give effect to the changes when parliamentary time allows, although it has not set out a specific date by which it intends to do so.
As explained above, it also seems likely that the FCA and the FOS will need to consult on changes to their own rulebooks in light of the introduction of the new principal firm permission and the extension of the FOS's jurisdiction. It has become increasingly common for these bodies to consult while the government consults on any connected draft legislation and therefore it is possible that the proposed details underpinning these new reforms could be published as a coordinated package. Although the precise timescale is currently unclear, given the technical work that may be involved in designing the new permissions regime, it may be that we will not see the consultations on the revised rules until 2026 at the earliest.
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