UK Appointed Representatives regime set for overhaul

The UK government recently consulted on reforms to the Appointed Representatives (AR) regime. The consultation, which affects around 34,000 ARs operating under approximately 2,400 principal firms, builds on HM Treasury's 2025 policy statement that set out initial proposals to adapt the AR regime.

Why reform?

The AR regime offers a route for businesses to engage in regulated activity under the "umbrella" of an authorised firm's permissions, without being directly authorised itself. As use of ARs has spread and evolved over decades, challenges to the safe operation of the regime and gaps in the regulatory framework have become apparent.

Work by the UK Financial Conduct Authority (FCA) on issues with the AR regime in December 2021 identified increased risk of detriment to consumers who engage with ARs, compared with those who engage directly with authorised firms. The failure of Greensill Capital in 2021 also highlighted the potential for misuse of the AR regime.

While the FCA has taken steps to address these concerns, such as implementing new rules and guidance and carrying out more targeted supervision, the government has concluded that the legislative framework for ARs should be reformed. The consultation sets out three main proposals.

A new principal permission

Currently, any authorised firm can act as a principal and appoint ARs, with no specific approval needed from the FCA. The government has concluded that the FCA should be able to ensure that an authorised firm wishing to act as a principal has the necessary expertise, resources and systems to carry out effective oversight of ARs.

Firms will need to pass through a new regulatory gateway before acting as principal, giving the regulator the opportunity to scrutinise applicants. Firms that already act as principal (that is, firms which already have ARs) will not need to apply, as they will be deemed to have the required permission already. 

The FCA will also have the power to vary or withdraw permission to act as principal, giving the regulator another route to limit or stop AR activity that might pose a material risk to consumers.

FOS jurisdiction extended 

Currently the Financial Ombudsman Service (FOS) cannot consider a complaint from a consumer about an AR's conduct, to the extent its principal firm is not responsible for that conduct. This quirk leaves some consumers unable to access the FOS to resolve disputes, an outcome they are unlikely to have foreseen.

The government proposes closing this gap, so that the FOS will have jurisdiction to consider complaints relating to regulated activities regardless of whether they are carried on by an authorised firm or an AR. Where the FOS determines that the principal is not responsible for its AR's acts or omissions, it will be able to consider the complaint directly against the AR.

This extension of the FOS's jurisdiction is not expected to impact the majority of complaints, as in most cases the principal does not dispute its responsibility for the AR's conduct. 

ARs within scope of the SM&CR

The Senior Managers and Certification regime (SM&CR) replaced the Approved Persons regime (APR) for authorised firms some years ago, but the legacy APR still applies to ARs. This inconsistency gives rise to different standards for similar or identical activities depending on the status of the firm performing them and places an increased administrative burden on both firms and the FCA, according to the government.

HM Treasury therefore proposes to bring ARs within scope of the SM&CR, resulting in a level playing field for all firms carrying on regulated activities.

The FCA would require principal firms to apply "fit and proper" requirements to their ARs, reducing the number of individuals within ARs who currently need FCA approval under the APR from around 38,000 people. For example, the requirement to obtain FCA approval for an individual performing the customer function, known as CF30 under the APR, falls away under the SM&CR. Instead, the principal would have to certify that the individual is fit and proper.

The regulator would also create a new dedicated AR senior management function in principal firms.

Osborne Clarke comment

The government's intention to preserve the broad scope of the AR regime and to spare existing principals from having to apply for the new permission will be reassuring for businesses. This approach leaves business models such as regulatory hosting for funds intact and minimises disruption to established principal firms.

In the long run, the ironing out of some inconsistencies, such as the continued application to ARs of the legacy APR, is likely to help simplify the regulatory landscape for firms. However, it is possible these reforms represent a move of the needle towards "fuller" regulation of ARs; for example, the possibility of an adverse FOS finding against an AR directly, with associated financial implications. This could prompt some ARs to reconsider the merits of becoming authorised in their own right.

HM Treasury is also taking the opportunity to tidy up a post-Brexit loose end: the tied agent exemption, derived from the EU’s Markets in Financial Instruments Directive, will be removed. It remains to be seen if the government will apply a similar approach to the payments and e-money sector, which is currently subject to a separate regime for agents, although this is not raised in the current consultation.

As the reforms require legislative change, the implementation date will be some way in the future, potentially in 2027 or beyond. Principal firms and ARs would do well to begin assessing the likely operational impact of the proposed reforms, in particular the transition to SM&CR. However, the details of both the legislative changes and related FCA rules remain to be decided.

If you would like help navigating the reforms to the Appointed Representatives regime and their potential impact on your business, please contact our experts.