FSMA Appointed Representatives reform: Too much? Too little? We wait…

The AR regime under the Financial Services and Markets Act 2000 (FSMA) can provide a proportionate and cost-effective way for firms to engage in FCA-regulated activity without being authorised. This gateway allows a broader range of providers to enter the UK market for financial services, promoting competition, efficiency, innovation and economic growth. Yet, historically, the AR regime has also been associated with elevated risk of consumer detriment.

Will long-awaited legislative changes from the UK government now find the elusive “golden mean” for ARs between an open market and an open goal?

What is an AR and an introducer AR (IAR)?

An AR is a firm or person who carries on regulated activity on behalf of, and under the responsibility of, an FCA-authorised firm (its principal firm or principal). When appointing an AR, the principal assumes responsibility for the regulated activities the AR carries on. Where this happens, provided that suitable contracts are in place, under s. 39 FSMA, the AR is exempt from the need to seek its own authorisation for the regulated activities it carries on.

Under FCA rules, as well as appointing full ARs, principal firms may also appoint an introducer AR. An introducer AR is an AR whose activities are restricted to effecting introductions and distributing marketing literature. Introducer ARs can include people like dentists or vets who hand out leaflets for, for example, dental or pet insurance. The limited activities of IARs and the attendant lower risks they pose means that IARs are subject to a reduced lower level of regulatory oversight compared with ARs.

What regulated activities can ARs do?

The AR concept was first introduced in the Financial Services Act 1986 (FSA 86) as a mechanism through which regulated firms could utilise self-employed representatives alongside employed staff to arrange and advise on investment products. FSA 86 envisaged that an AR’s investment activities would be directly linked to the activities of its principal. 

When FSMA was enacted, it included an expanded and modified AR regime. The FSMA AR regime provided a potential exemption for a wider range of regulated activities and those activities no longer needed to necessarily mirror activities being undertaken by an AR’s principal. Activities which ARs can undertake are listed in Regulation 2 of the FSMA (Appointed Representatives) Regulations 2001 (as amended) and set out for ease of reference in SUP12 of the FCA Handbook. Eligible regulated activities for full ARs now include a broad range of arranging, advising and debt-related activities as well as dealing in certain investments as agent.

As at 2021, the FCA estimated that there were around 40,000 ARs, including IARs, operating under around 3,600 principals in a wide range of financial services markets. This included c.16,200 ARs in the retail lending sector and c. 13,500 in general insurance and protection. The recent UK government consultation estimates that there are still around 34,000 ARs operating in the UK today.

What are AR networks and regulatory hosts?

The FSMA AR regime has given rise to new business models involving ARs. These structures involve multiple ARs linked to a single principal, including ARs whose activities may not necessarily align with regulated activities undertaken by the principal.

An AR network model is based on a single principal firm which appoints a group of ARs that share a common commercial objective and usually operate in the same market, such as mortgage intermediaries or financial advisers. The network typically provides its ARs with FCA compliance services, technology and back-office functionality. The FCA defines an AR network as any principal firm which has 5 or more AR firms, or ARs that have 26 or more individual advisers between them. 

 A regulatory host is a principal firm that may typically carry out little or no regulated activity itself. Instead, it oversees the use of its permissions by ARs and acts as a “regulatory host” for these ARs. This service is commonly marketed as an additional service alongside other compliance support services.  Regulatory host firms can oversee a wide variety of eligible AR activities and may not share common commercial objectives with their ARs.

What concerns have been raised about the AR regime?

A watershed moment for the AR regime came in July 2021 when the UK Parliament’s Treasury Select Committee (TSC) published its Final Report on “Lessons from Greensill Capital”. The Report aimed to capture learnings from the collapse of the Greensill supply chain finance group. Greensill Capital Securities Limited, one of the companies involved in the collapse, was an AR of an FCA-regulated advisory firm. The Report (paras 45-51) concluded that the AR regime “may be being used for purposes which are well beyond those for which it was originally designed”. It went on to call on the FCA and HM Treasury to “consider reforms to the AR regime, with a view to limiting its scope and reducing opportunities for abuse of the system”.

In December that year, the FCA launched a consultation (CP21/34) on” Improving the AR regime”. This focused on immediate enhancements to regulation which did not require legislative change.

CP 21/34 highlighted further concern about consumer outcomes under the AR regime. It referred to FCA findings in previous thematic reviews of the general insurance (2016) and the investment management (2019) sectors which had identified significant shortcomings in principals’ understanding of their regulatory responsibilities for their ARs. CP21/34 noted that, on average, principal firms generated 50% to 400% more complaints and supervisory cases than non-principal firms across all FCA-regulated sectors where the AR model operated. It also analysed data showing that principals and ARs accounted for 61% of the monetary value of claims on the Financial Services Compensation Scheme from 2018 to H12019, for which the total was £1.1bn during this period.

There was more particular concern around whether principals with multiple ARs (such as AR networks and regulatory hosts) were exercising appropriate control and oversight for the ARs for whose activities they had accepted responsibility.

What steps has the FCA taken to improve the AR regime?

In August 2022, the FCA published PS22/11 “Improvements to the AR regime”. The policy statement introduced new measures designed to improve the FCA’s visibility over ARs and to strengthen the FCA’s emphasis on the responsibility which principal firms have for the activities of their appointed ARs. It followed a move earlier in 2021 to introduce a new FCA levy on principal firms of a fixed regulatory fee for each AR or IAR appointed to better resource supervision of ARs.

The new rules took effect from 8 December 2022 and required principals to:

• Notify the FCA of future AR appointments 30 days before an appointment takes effect
• Provide information to the FCA about their ARs on an ongoing basis, including the ARs’ business volumes and complaints data
• Notify the FCA in advance if they intend to provide regulatory hosting services
• Exercise more effective oversight of ARs, including by:
  • ensuring the adequacy of an AR’s systems, controls and resources
  • monitoring and assessing the risk of harm to consumers from ARs
  • having clarity on the circumstances where they should terminate an AR relationship
  • reviewing information on ARs’ activities, business and senior management at least annually
  • preparing an annual self-assessment review of the effectiveness of their oversight of their ARs.

What further changes to the AR regime has the UK government consulted on?

Alongside the FCA’s 2021/2 work on new regulatory rules governing the activities of principal firms and ARs, the UK government had launched a December 2021 Call for Evidence on the AR regime. This was followed in August 2025 by a Policy Statement setting out the UK Government’s intention to move forward with changes to the regime. A formal consultation on proposed changes to the AR regime was published in February 2026. 

The February 2026 consultation puts forward the following proposals for reform of the AR regime:

• Gateway permission for principal firms: a firm that wants to become a principal firm will need to obtain specific regulatory permission to do so.
• ARs to be brought within the Senior Managers & Certification Regime (SMCR): The SMCR now applies to all authorised firms with only ARs remaining in the old Approved Persons regime. It is proposed that individuals working in ARs and individual ARs themselves would be brought in scope of the SMCR and assessed as fit and proper by their principal firms. FCA conduct rules would apply to all AR employees except ancillary staff. A new senior manager function at a principal firm with responsibility for oversight of a firm’s AR relationships would also be created.
• Targeted expansion of the jurisdiction of the Financial Ombudsman Service (FOS): Currently, a principal firm is responsible for settling complaints arising from the activities of its AR for which it has assumed responsibility. This left a lacuna for consumer complaints brought against an AR which acted outside its permitted activities. The FOS will now be able to uphold these types of complaints against an AR directly and obtain redress from the AR. Related redress liabilities will be covered by the Financial Services Compensation Scheme if the AR is not able to pay.
• New FCA flexibility in setting requirements around AR governance:  The minimum standards for AR contracts and for publication of details of ARs on the Financial Services Register would be removed from FSMA and related secondary legislation and replaced by FCA regulatory rules.
• Repeal of provision relating to overseas tied agents of UK MiFiD firms.

Perhaps the most significant of these changes is the new ‘regulatory gateway’ for principal firms. This approach resembles the permission regime adopted in February 2024 to limit those authorised firms able to approve financial promotions for other firms (which was previously allowed for any authorised firm).

The consultation makes clear that existing principals would not be expected to apply for permission to continue acting as a principal, with FCA permission to act as principal being granted by default. However, the permission gateway opens the door to the FCA in future limiting or withdrawing permission to act as principal if it considers that a firm is no longer suitable due to failings in its control and oversight of ARs. The consultation also mentions the potential for the FCA to limit a principal’s permission to the appointment of IARs only (which might suggest that the FCA expectations for principals appointing full ARs will be more exacting going forward).

Future of the AR regime

The announcement of final UK government reform of the AR regime is expected later this year. Assuming the proposals are taken forward, the combination of FCA and FSMA changes will complete the response to the recommendation in the 2021 TSC Greensill Report.

Post-implementation there will no doubt be reflection and evaluation on whether confidence in the AR regime has been restored as the TSC had hoped, or whether the exemption from the general prohibition enjoyed by ARs still poses risks to the integrity of the regulatory gateway. 

Forensic analysis of FCA data on complaints, redress, compensation and supervisory cases will tell one part of the story. FCA reporting on the numbers of ARs and the revenue they generate will tell another. We must wait and see whether the AR regime will remain a helpful “foot in the door” of financial services or an unattended window left ajar.