Briefing

HM Treasury consults on reform of the Appointed Representatives regime

HM Treasury (HMT) has published a consultation paper setting out proposed legislative changes to the Appointed Representatives (AR) regime.

The consultation follows a policy statement published in August 2025 which stated that the government intends to address concerns about the AR regime so that consumers and businesses can have confidence in it.

In the consultation, HMT frames its proposals on the AR regime as being designed to ensure that law and regulation support growth and competitiveness in the financial services sector while delivering proportionate consumer protection. This also aligns with the government’s wider focus on growth and competitiveness in the financial services sector.

Background

The AR regime has been a longstanding feature of UK financial services regulation, with the consultation stating that around 34,000 ARs operate under approximately 2,400 authorised principal firms. The government views the regime as a proportionate and cost-effective way for firms to engage in regulated activity without direct authorisation, promoting competition, supporting innovation and contributing to economic growth.

However, in recent years, evidence of increased risk of consumer detriment from AR activity compared with directly authorised firms has been identified by the FCA, prompting calls for reform.

HMT’s proposals seek to adapt the existing legislative framework for the AR regime to strengthen consumer protection while preserving the scope of the regime.

Proposal 1: A new principal permission

Currently, any authorised firm may act as a principal and appoint ARs without any further permission or approval from the FCA. HMT suggests that this creates a gap in the regulatory framework regarding the suitability of firms to act as a principal.

HMT proposes to address this by introducing a new FCA permission to act as principal, modelled on the existing regulatory gateway for approving financial promotions.

Authorised firms will be prohibited from acting as principal without FCA permission. Acting without permission will be treated as a contravention of an FCA requirement, with the usual supervisory and enforcement tools available to the FCA.

Additionally, the FCA will be able to grant, vary and cancel permission on application, including setting specific terms or restrictions, acting on its own initiative and refusing to grant or vary permission where doing so would advance one or more of its operational objectives.

The new permission is designed to apply as follows:

Principal firms that have already appointed ARs will not need to apply for the new permission — they will be deemed to hold it automatically, though the FCA will retain the ability to vary or withdraw it where necessary.
Authorised firms that seek to appoint ARs for the first time will need to obtain the new permission from the FCA.
The principal permission will be embedded in the standard authorisation process under Part 4A of FSMA 2000 for new firms, avoiding a separate application.

New firms and authorised firms who need to obtain the permission are likely to be interested in the criteria that the FCA intends to apply when assessing whether to grant the new permission or not.

Proposal 2: Extension of FOS jurisdiction to ARs

Currently, where an AR’s conduct giving rise to a complaint falls outside the scope of activities for which its principal is responsible, the Financial Ombudsman Service (FOS) must conclude that the complaint falls outside its compulsory jurisdiction. HMT considers this outcome unfair to consumers and proposes a targeted remedy.

The FOS will continue to handle most AR-related complaints by investigating the principal firm. Where it upholds a complaint against the principal, it will direct redress to the principal as before.

However, under the proposed changes, where the FOS determines that the principal cannot be held responsible for its AR’s acts or omissions, the FOS will be able to consider the complaint directly against the AR and, if it upholds the complaint, direct redress to the AR. In such cases, the FOS will join the AR as a party to the complaint, ensuring the AR can make representations and submit its own response. It is anticipated that the FOS will make scheme rules (with FCA approval) to address these changes.

HMT notes that the proposed extension will be designed and implemented consistently with the conclusions of the government’s review of the FOS, which seeks to ensure the FOS operates as a simple, impartial, and efficient dispute resolution service¹.

The number of complaints that fall outside the jurisdiction of the FOS is already relatively small, and these changes are unlikely to be significant in comparison to the other proposals in the consultation.

Proposal 3: Bringing ARs within scope of the SM&CR

The Senior Managers and Certification Regime (SM&CR) applies to all authorised firms. However, ARs remain subject to the Approved Persons Regime, the predecessor of the SM&CR. HMT considers that the application of a different regime to ARs serves no useful purpose and results in unnecessary administrative burdens for firms and the FCA.

The proposal to bring ARs within scope of the SM&CR, aligned with the broader SM&CR reforms consulted on as part of the Leeds Reforms, would mean that:

the SM&CR general conduct rules would apply directly to all relevant individuals in ARs, putting them on the same footing as staff in authorised firms carrying on similar activities;
the FCA would use its existing rule-making powers to require principal firms to apply fit and proper requirements to their ARs; and
the FCA would have the ability to create a new dedicated AR Senior Management Function within principal firms, holding senior managers directly accountable for oversight of the firm’s AR appointments.

This alignment should simplify AR oversight for principal firms. However, the creation of a new Senior Management Function is likely to increase personal accountability, and associated liability, for named individuals.

Next steps

The consultation closed on 9 April 2026.

Once the changes to the AR regime’s legislative framework are finalised, HMT and the FCA are expected to set out a more detailed implementation plan and timetable.

The reforms are likely to be broadly welcomed by consumer groups and the FCA. For industry stakeholders, principal firms in particular, the key questions will be the scope of the FCA’s assessment criteria for the new permission, the operational demands of the new principal SMF and the real extent of the extension of the FOS’s jurisdiction.

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