Executive Summary
- What’s new: HM Treasury published a consultation proposing targeted legislative reforms to the Appointed Representatives regime, including introducing an FCA permission requirement for principal firms, extending the Financial Ombudsman Service’s jurisdiction to ARs in certain circumstances and applying the Senior Managers and Certification Regime to AR personnel.
- Why it matters: The proposals would represent the most significant legislative changes to the AR regime in over two decades, enhancing FCA oversight of principal firms; increasing regulatory accountability for ARs; and potentially requiring firms to strengthen governance, oversight and accountability frameworks for AR arrangements.
- What to do next: Principal firms and ARs should assess their existing AR arrangements and oversight frameworks in light of the proposed reforms and consider whether to respond to the consultation ahead of the 9 April 2026 deadline.
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On 12 February 2026, HM Treasury (HMT) published a consultation paper proposing targeted legislative reforms to the UK’s Appointed Representatives (AR) regime. The proposals form part of a broader programme of regulatory reform to address concerns raised by the U.K. Financial Conduct Authority (FCA) and HMT regarding weaknesses in principal firm oversight and risks to consumers. This consultation follows an earlier policy statement published in August 2025 where HMT set out its plans for strengthening and safeguarding the AR regime.
The consultation builds on recent FCA supervisory and rule-based enhancements to the regime and is intended to introduce structural protections at the legislative level. While the authority is not replacing the AR framework itself, the proposals would materially strengthen FCA supervisory control over principal firms and increase regulatory accountability for ARs.
The consultation closes on 9 April 2026.
Background
Under section 39 of the Financial Services and Markets Act 2000 (FSMA), authorised firms may appoint ARs to conduct certain regulated activities under the principal’s regulatory permissions, with the principal assuming responsibility for those activities. The regime is widely used across the financial services sector, particularly in wealth management, insurance distribution and consumer finance.
In recent years, both the FCA and HMT have identified supervisory challenges arising from the scale and complexity of AR arrangements, including cases where principal firms exercised insufficient oversight of AR activities. Following FCA rule changes implemented in December 2022 to strengthen principals’ oversight obligations, HMT’s consultation proposes legislative reforms to address structural limitations in the current framework.
Introducing a Regulatory Gateway for Principal Firms
The most significant proposal is the introduction of a formal regulatory “gateway” requiring FCA permission before an authorised firm may act as a principal.
Currently, authorised firms may appoint ARs without obtaining prior regulatory approval to act as principals, provided they comply with applicable FCA rules. Under the proposed gateway, a firm would need to obtain specific FCA permission to act as a principal, and the FCA would have the power to impose conditions on, vary or revoke that permission. For dual-regulated firms, the FCA would exercise these powers in consultation with the Prudential Regulation Authority (PRA).
Existing principal firms would be automatically grandfathered into the regime but would become subject to ongoing FCA review and potential intervention. New applicants seeking FCA authorisation would be required to obtain principal permissions as part of the authorisation process.
This proposal would significantly enhance the FCA’s ability to control entry into, and participation in, the appointed representative regime for would-be principals, allowing the regulator to assess firms’ governance, resources and oversight capabilities before permitting them to supervise ARs.
Extending Financial Ombudsman Service Jurisdiction to ARs
HMT also proposes expanding the jurisdiction of the Financial Ombudsman Service (FOS) to enable it, in certain circumstances, to make determinations directly against ARs.
Currently, consumers typically bring complaints against principal firms, which are legally responsible for regulated activities carried on by their ARs. Under the proposed reform, the FOS would be able to consider complaints and award redress directly against ARs where appropriate, including in circumstances where the principal firm may not bear responsibility for the relevant conduct.
This change would not alter the existing requirement for complaints to be handled initially by the principal firm. However, the update would increase AR accountability and provide an additional mechanism for consumer redress.
The proposal reflects HMT’s concern that the current framework does not always ensure effective consumer protection where ARs engage in misconduct outside the scope of their principal’s regulatory responsibility.
Applying the Senior Managers and Certification Regime to ARs
The consultation proposes extending the Senior Managers and Certification Regime (SMCR) to ARs, replacing the existing Approved Persons Regime that currently applies to individuals performing controlled functions within ARs.
Under the proposed reforms, SMCR conduct rules would apply to AR personnel (other than ancillary staff). In addition, the FCA would use its existing rulemaking powers to require the principal to apply fitness and propriety requirements to the relevant AR personnel (i.e., an extension of the SMCR certification regime). The FCA may introduce a new senior management function (SMF) within principal firms specifically responsible for overseeing AR relationships.
The proposal is intended to align individual accountability standards across authorised firms and ARs and reinforce principal firms’ responsibility for ensuring appropriate governance and oversight of AR operations.
Removing Tied Agent Provisions
HMT also proposes repealing the tied agent provisions in FSMA Section 39A, which were introduced to implement EU legislation and are now largely redundant following the UK’s withdrawal from the EU.
This is primarily a technical change intended to simplify the legislative framework rather than one that materially alters regulatory obligations.
Practical Implications for Firms
If implemented, the proposed reforms would represent the most significant legislative changes to the AR regime in over two decades. Key implications include:
- Enhanced regulatory scrutiny of principal firms. The proposed gateway would enable the FCA to exercise greater control over which firms may act as principals and to intervene where firms do not meet supervisory expectations.
- Increased regulatory accountability for ARs. The extension of FOS jurisdiction and SMCR conduct rules would increase direct regulatory and individual accountability for ARs and their personnel. The broader impact in terms of SMF approvals and certification regimes will depend on how the FCA seeks to implement these requirements.
- Greater governance and oversight obligations. Principal firms may need to strengthen governance arrangements, oversight frameworks and due diligence processes relating to AR appointments and supervision.
- Potential impact on business models. Given the increase in oversight that principal firms will need to exercise over their ARs, existing ARs may wish to consider whether moving to being directly authorised would be advantageous.
Next Steps
The consultation period closes on 9 April 2026. HMT will consider feedback before determining whether to proceed with legislative changes.
While the proposals remain subject to consultation, firms that act as principals or ARs should begin assessing their existing arrangements and governance frameworks to ensure they would meet the enhanced regulatory expectations under the proposed regime.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.