HM Treasury has recently issued a Policy Statement (PS) about the Appointed Representatives Regime.
The Appointed Representatives (AR) regime is a longstanding and widely used feature of UK financial services regulation. It was first established by the Financial Services Act 1986 for investment services activity, before being adapted and applied to a broader range of financial services activity through the Financial Services and Markets Act 2000 (FSMA 2000).
Since the regime began in 1986, the use of ARs has increased and spread across much of the financial services sector. There are now around 34,000 ARs operating under around 2,400 authorised firms. The AR regime promotes competition, supports innovation and contributes to economic growth of the UK.
The PS makes it very clear that the Government views the AR regime as a very important part in the provision of UK financial services, delivering a range of benefits to businesses and consumers. The AR regime proven itself to be cost effective way for firms to engage in regulated activity without being authorised. This allows small businesses or sole traders to enter the financial services sector without:
- the need to be authorised, or
- have complex compliance in place.
As use of ARs has spread and evolved, challenges to safe operation of the regime have come to light. Work by the FCA in recent years has identified evidence of increased risk of detriment to consumers who engage with ARs (as compared with consumers who engage directly with authorised firms). To be fair, the FCA has taken steps to address this concern to minimise the opportunities for abuse. This includes:
- implementing new rules and guidance for principal firms aimed at strengthening principal firm oversight of ARs;
- enhancing FCA scrutiny of principal firms as they appoint ARs; and
- more targeted FCA supervision of principals, informed by improved data and analysis to identify where the risks with AR use exist.
The government welcomes the steps taken by the FCA, but following a review of the regime, the government has concluded that reform of the overall legislative framework for ARs is also needed. The government wants to ensure the AR regime continues to deliver benefits to firms, consumers and the UK economy. The government therefore intends to adapt the current legislative framework for ARs in order to
- provide a proportionate level of protection for consumers of AR firms,
- ensure the current broad scope of the AR regime is preserved, and
- enable the financial services sector and the UK economy as a whole to continue benefitting from the regime well into the future.
In order to do this, the Government is looking to implement ‘targeted reforms’ to the legislative framework for ARs. The intention is to help prevent misconduct involving ARs and to provide appropriate consumer protection when things go wrong. The targeted reforms are to reinforce the authorisation process to ensure that Principal firms have the necessary expertise and resources in place to effectively oversee their ARs and ensure they act responsibly.
As for consumer protection, the intention is to encourage consumers to be able to take a complaint to the Financial Ombudsman Service (FOS) if they are unable to resolve a dispute involving an AR where the authorised firm is not responsible for the issue in dispute.
These targeted reforms follow the approach set out in the government’s Regulation Action Plan. In particular, these reforms are consistent with the government’s vision for regulation as follows:
- Support growth
- Are targeted and proportionate
- Are transparent and predictable
- Adapt to keep pace with innovation
As part of this review, the government announced a review of the FOS to ensure that the FOS operates as a simple, impartial dispute resolution service which quickly and effectively deals with complaints against financial services firms, and which works in concert with the Financial Conduct Authority. This was announced on 17 March 2025 as part of the government’s Regulation Action Plan. The proposal to extend FOS jurisdiction to ARs will be developed to be consistent with the conclusions of the FOS review.
The conclusions of that review were published on 15 July: see Open consultation FS Sector Strategy: Review of the Financial Ombudsman Service – July 2025.
