Briefing

Liability for UK appointed representatives: UK Supreme Court restores common sense

Key takeaways

The UK’s highest court has found that the Court of Appeal took a wrong turn in Kession Capital v KVB Consultants¹ (our Court of Appeal decision update here).
The Supreme Court has clarified English law. Returning to a more common-sense and easy to apply interpretation, the decision also removes some legal inconsistencies within the Court of Appeal outcome.
The outcome is very welcome. However, the appointed representatives regime, and those subject to it, continue to be subject to close regulatory scrutiny and review. Parties should ensure that their respective contractual and regulatory risks, rights and obligations are clearly understood, delineated and compliant.

Recap

Section 39 of the Financial Services and Markets Act 2000 allows an authorised person (the Principal) to appoint someone else (the appointed representative (AR)) to carry on regulated financial services business on the Principal’s behalf. The Principal must accept responsibility for the financial services activities that the AR will perform, and the Principal/ AR relationship must be set out in an AR Agreement.

Very briefly, the facts of the Kession case were that the Principal appointed an AR. The Principal was not itself authorised to deal with retail clients, and the AR Agreement expressly prohibited the AR from dealing with retail clients. Despite this, the AR dealt with retail clients, who ultimately lost money through failed investments. The AR became insolvent, and the out-of-pocket investors pursued the Principal.

The majority in the Court of Appeal agreed with the trial court judge, finding that the Principal was responsible for the retail investors’ losses. The decisions on that point – now overturned by the Supreme Court – were not without critiques at the time.

Supreme Court decision

The Supreme Court focused on the core question: the extent of the Principal’s responsibility for the AR’s activities. Interpreting section 39 was a balance between consumer protection and avoiding regulatory overkill.

All of the Kession judgments relied on the earlier case of Andersen v Sense Network Ltd.² The Court of Appeal had focussed on the Andersen distinction between “what” activity the AR carried out, in contrast to “how” that happened (explained in our earlier update). The Supreme Court instead focussed on the Principal’s assumption of liability for the AR via the wording of section 39. That is, whether the retail business (prohibited in the AR Agreement) was a “whole or part” of a financial services business.

The Supreme Court Justice who delivered the Supreme Court’s unanimous decision (and who, incidentally, was interpreting his own judgment in Andersen), thought that “retail” could clearly be “part” of a business, and that the wholesale/ retail distinction was “centuries old”. He determined that a different interpretation would undermine the statute’s purpose, be regulatory overkill, and be unfair to the Principal. Therefore the AR Agreement’s retail business exclusion was effective, and the Principal was not liable to the out-of-pocket investors.

As something of a footnote, the Supreme Court also clarified, by example, that an AR Agreement cannot exclude a Principal’s responsibility by relying on a contractual term that the AR must operate with regulatory compliance. This is because such a clause would go to ‘how’ the AR business was conducted, but not ‘what’ the business is.

A welcome return to common sense

Now that we have a final judgment from the Supreme Court, this ruling should give Principals and ARs a clearer practical guide when delineating responsibilities in AR Agreements.

Helpfully the judgment also resolves technical legal difficulties in the Court of Appeal decision, such as previously the AR seemingly being able to conduct activities beyond the Principal’s regulatory permissions without civil or criminal consequence.

Suggested action points

Correctly calibrate the AR relationship: whilst the Supreme Court has given welcome clarification to the law, the fundamental regulatory point remains that the AR relationship must be correctly calibrated from the start. The Principal and AR should ensure that the risks, rights and obligations of the relationship are clearly scoped, understood and agreed, including through due diligence and the AR Agreement.

Ensure continuing compliance: the AR relationship is not “one and done”. Each party must comply with its respective contractual and regulatory obligations on an ongoing basis. The Financial Conduct Authority expects robust oversight of ARs by Principals, and this is only likely to increase if/ when the new AR regime (see below) comes into force.

Keep up to date with regulatory developments: UK policymakers and regulators are actively scrutinising the existing AR regime. In February 2026, HM Treasury published a consultation on proposed reforms, including a new FCA permission requirement for firms wishing to act as Principal and proposals to bring ARs within scope of the Senior Managers and Certification Regime (see our update here).

Footnotes