HM Treasury Consults on Wide-Ranging Reforms to the Appointed Representatives Regime — Implications for Principals and ARs

HM Treasury has just published a consultation paper seeking views on proposed legislative changes to the appointed representatives (AR) regime under the Financial Services and Markets Act 2000 (FSMA). The regime, which allows unauthorised persons to carry on regulated activities under the oversight of an authorised principal firm, remains a key entry point for many firms into the UK financial services market, with approximately 34,000 ARs currently operating under around 2,400 principals.

The government has confirmed its intention to preserve the regime’s overall scope while introducing what it considers to be targeted and proportionate reforms to address identified gaps in oversight, consumer protection and regulatory consistency. These reforms build on the August 2025 Policy Statement and respond to earlier concerns about misconduct risks and inconsistencies in supervision.

The consultation closes on 9 April 2026.

In the sections below, we analyse the key areas of reform:

• Requiring principal firms to obtain a specific regulatory permission to appoint ARs.
• Establishing detailed rules to govern the relationship between principal firms and their ARs.
• Extending the jurisdiction of the Financial Ombudsman Service (FOS) to cover activities of ARs for which the principal firm is not responsible.
• Imposing the Senior Managers and Certification Regime (SMCR) on ARs to replace the legacy Approved Person’s Regime.

New Regulatory Permission for Principals to Appoint ARs

Currently, any Financial Conduct Authority (FCA) authorised firm may appoint ARs without additional approval.

The government views this as a gap, given principals’ responsibility for robust oversight of AR compliance.

The proposals would introduce a specific FCA permission (a “principal permission” or regulatory gateway) required before a firm can appoint or continue to oversee ARs. This would enable the FCA to assess whether prospective (and existing) principals have the necessary expertise, resources, systems and controls to supervise ARs effectively.

Firms without this permission would be prohibited from acting as principals.

Existing principals may benefit from transitional arrangements (i.e., grandfathering) but new entrants or firms seeking to expand into principal activities would need to apply via a Variation of Permission (VoP). The FCA would gain powers to impose conditions, set limitations or withdraw the permission if standards are not met.

Principals should therefore prepare for enhanced scrutiny of their governance, risk management and AR oversight frameworks.

Detailed Rules Governing Principal-AR Contractual Relationships

While principals must currently document AR appointments (with contractual provisions usually covering compliance and oversight), there are limited prescriptive requirements under the current FCA rules.

The government expects that the FCA will issue rules setting out more detailed obligations governing the contractual arrangements between principals and ARs. These obligations may be tailored depending on the regulated activities involved (e.g., insurance distribution, consumer credit or investment advice).

Principals will likely need to review and update AR agreements to align with new minimum standards, covering areas such as compliance monitoring, termination rights, information sharing and indemnity provisions. Both principals and their ARs will need to establish systems and controls to comply with any new requirements under the FCA’s new rules.

Extension of Financial Ombudsman Service Jurisdiction

Currently, the FOS can consider complaints against a principal for acts or omissions of its AR if the principal is responsible (under Section 39(3) FSMA or agency principles). However, there is a gap where AR conduct falls outside the scope of activities for which the principal has accepted responsibility.

The proposals would extend the FOS’s compulsory jurisdiction to cover all relevant regulated activities carried on by ARs. If the principal is not responsible for the specific conduct that gave rise to the complaint, the FOS could consider the complaint directly against the AR and, if upheld, direct appropriate redress from the AR itself.

This mechanism closes a potentially significant consumer protection gap but increases direct exposure for ARs. Principals should ensure AR contracts include appropriate dispute-handling and redress mechanisms.

Application of the Senior Managers and Certification Regime to ARs

Individuals at some ARs remain subject to the legacy Approved Persons Regime, creating inconsistency with the SMCR that applies to directly authorised firms.

The government proposes bringing ARs fully within the SMCR scope, applying general conduct rules directly to individuals performing regulated activities at ARs (extending to most staff except ancillary roles, and to AR firms themselves where relevant). The FCA would tailor application to reflect principals’ overarching responsibility.

This proposal would replace the Approved Persons Regime for ARs, aligning standards but introducing new certification, conduct rule and fitness/propriety obligations. Principals may need to coordinate with ARs on SMCR implementation, including fitness assessments and training. This change could substantially expand the scope of individual liability at the AR level.

Next Steps

The consultation remains open until 9 April 2026.

While implementation of the new rules may not occur in the near term, ARs and principal firms should both start to assess the impact of the proposed new regime on their business structures.

We expect the government to publish a response and final legislative proposals later in 2026, with FCA consultations and rules to follow on detailed implementation.