Filling the Gaps? HM Treasury Consults on Appointed Representatives Regime

On 12 February 2026, HM Treasury (HMT) launched an open consultation proposing reforms to the appointed representatives (ARs) regime. This followed its Policy Statement published on 11 August 2025 (which we commented on previously), which identified concerns regarding consumer harm and weaknesses in regulatory oversight.  

To address these concerns, HMT has proposed targeted reforms to the legislative framework for ARs intended to: reduce the risk of misconduct; improve consumer protection; and streamline the conduct and fitness and propriety frameworks that apply to ARs to better align with the frameworks applying to authorised firms. 

The three key proposals are: 

1. A new FCA permission for authorised firms wishing to act as principal;

2. An extension of FOS coverage to ARs that act outside of the business for which their principal firm is responsible; and 

3. Bringing ARs within the scope of the Senior Managers and Certification Regime (“SMCR”).

We summarise each of the proposals below. 

1. A Principal Permission

The AR regime puts responsibility on the principal firm to ensure its ARs carry on regulated activities with sufficient competence and comply with relevant regulatory requirements. Under current legislation, any authorised firm is permitted to act as principal and appoint ARs – no separate FCA approval is required. 

HMT has proposed a new regulatory gateway for authorised firms wishing to act as principal. This would require authorised firms to apply for FCA permission to act as a principal and the FCA would be able to grant, vary, restrict or withdraw this permission. The gateway would provide the FCA with oversight of ARs, creating a mechanism to scrutinise prospective principals to ensure adequate expertise, systems and resources to effectively oversee ARs. It would also enable the FCA to take action to limit or stop AR activity which might pose a risk to consumers by granting the ability to vary or withdraw permission for a firm to act as principal. 

Importantly, if this proposal is implemented, existing principals would automatically receive the new permission to avoid disruption, although the FCA could vary or withdraw such permissions in future if it becomes necessary.

2. Extension of FOS Jurisdiction to ARs

The second proposed reform is to extend FOS coverage of ARs that act outside the business for which their principal firm is responsible. 

Under the current regulatory framework, the FOS is able to consider complaints against principal firms where they are responsible for the complained of AR’s actions or omissions. But this only applies to the extent that the AR’s conduct falls within the scope of activities for which the principal is responsible – if it becomes clear that the principal firm is not responsible, the complaint falls outside of the FOS’ compulsory jurisdiction. 

HMT has proposed an extension of the FOS compulsory jurisdiction to ensure that all consumers of regulated financial services have access to the FOS, whether dealing through an authorised firm or AR. In the first instance, the FOS will continue to uphold complaints against principal firms where it determines that the principal was responsible for misconduct involving its AR. However, the FOS will be able to directly consider a complaint against the AR itself in cases where it determines that the principal cannot be held responsible for its AR’s acts or omissions. Under this proposal, consumers will be provided with access to the FOS in a situation in which they are currently unprotected when dealing with ARs. 

3. Bringing ARs within the scope of the SCMR

HMT has proposed that ARs should be brought into the scope of the SMCR. This would harmonise the frameworks for conduct, fitness and propriety and accountability that apply to ARs and principal firms (which are covered by the SMCR). 

Under the proposed reforms, the SMCR conduct rules would apply directly to the AR’s employees (excluding ancillary staff) and principals would be required to apply fitness and propriety requirements to AR personnel. In addition, the FCA may introduce a new senior management function within principal firms dedicated to AR oversight. 

Applying the SMCR to ARs is intended to promote high standards of conduct for ARs – in line with the individual accountability standards required of authorised firms – and emphasise principal firms’ responsibility for ensuring their ARs meet appropriate standards.

Effect of the Proposed Reforms

Overall, HMT’s proposals represent a clear step towards greater control and structure in the regulation of AR arrangements. The reforms (if implemented) should provide the FCA with enhanced oversight of principal firms, ensuring the suitability of authorised firms to act as principal and enabling the regulator to intervene where firms do not meet supervisory expectations. 

For consumers, the proposals would provide greater protections and clearer routes to redress. The proposed principal permission requirement should reduce the risk of misconduct by ARs, by ensuring that authorised firms who want to act as principals have the necessary resources to provide proper oversight. However, principals may face increased costs in connection with onboarding and oversight, in addition to enhanced regulatory scrutiny. For ARs, the proposals represent a significant increase in regulatory accountability, particularly if the SMCR conduct rules are directly applied to them. 

In addition, the proposals raise some queries – for example, if the FOS upholds a complaint against an AR and orders it to pay redress, what happens if the AR is not financially able to? Unlike regulated firms, ARs aren’t required to have professional indemnity (PI) cover (or an equivalent guarantee) to ensure redress can be paid. Many ARs are small concerns: if they do not have PI cover or sufficient financial reserves, they may be unable to pay any redress awarded by FOS. As yet, it is not clear what the government’s approach would be to remedy this. If paying the awarded redress led to the AR’s failure then, provided all other relevant conditions are met, it is possible that the consumer could have an eligible claim with the FSCS. 

The proposed extension of the FOS jurisdiction could therefore result in additional claims for compensation being made to the FSCS. However, HMT does not expect the extension of FOS jurisdiction to have a material impact on the overall cost of FSCS compensation – the consultation notes that “the number of FOS cases involving an AR where the FOS concludes the principal firm cannot be held responsible is very small and has been declining in recent years.”

Whilst intended to promote confidence in the AR model and deliver good outcomes for consumers, the proposals could have a big impact on ARs. If implemented, the reforms could cause existing ARs to reconsider which route to take: whether to remain part of a network or to take the direct authorisation route instead. 

The consultation is open until 9 April 2026, and HMT welcomes representations from all interested parties and stakeholders. 

If you would like to discuss any of the proposed changes, please get in contact with Suzanne Padmore, Charlotte Bainbridge or your usual Burges Salmon contact. 

This article was written by Charlotte Bainbridge & Suzanne Padmore

"The government wants to ensure safe operation of the AR regime so that it can continue to deliver these benefits to firms, consumers and the UK economy. The government therefore intends to adapt the legislative framework for ARs to provide a proportionate level of protection for consumers of AR firms, while ensuring that the current broad scope of the AR regime is preserved, enabling the financial services sector, and the UK economy as a whole, to continue benefitting from the regime well into the future."

https://www.gov.uk/government/consultations/consultation-the-appointed-representatives-regime/consultation-the-appointed-representatives-regime#introduction