Acting as principal becomes an FCA permission, not an entitlement

HM Treasury is proposing to turn the act of being a principal into a discrete FCA permission, and to let the Financial Ombudsman Service reach an appointed representative directly in the narrow cases where section 39 leaves nobody responsible — a targeted repair to the two structural gaps in the UK appointed representatives regime, not a rebuild of it.

The consultation, The Appointed Representatives Regime, was published on February 12, 2026 and closed on April 9, 2026, following a policy statement of August 11, 2025 and a call for evidence in December 2021. Roughly 34,000 appointed representatives (ARs) operate under about 2,400 authorised firms, and the government’s framing is that the regime’s scope will not change — what changes is the gate in front of it, the reach of the ombudsman behind it, and the conduct standards applied to the people inside it. This analysis covers the permission mechanics, the section 39(3) responsibility gap, how four jurisdictions allocate principal liability, and what principals must evidence from here.

Key facts

• Consultation window: published February 12, 2026, closed April 9, 2026 — an eight-week window (HM Treasury, Consultation: The Appointed Representatives Regime).
• Population: approximately 34,000 ARs under approximately 2,400 authorised principals (HM Treasury, February 2026), against roughly 35,000 ARs under roughly 2,900 principals in the FCA’s August 2023 dataset — a principal population down about 17% in under three years.
• Approvals removed: roughly 38,000 individual approvals currently required under the Approved Persons Regime would fall away if AR staff move to the Senior Managers and Certification Regime (SM&CR) (HM Treasury, February 2026).
• Harm data: principals generate 50% to 400% more complaints and supervisory cases than other directly authorised firms, and principals and ARs accounted for 61% of the total value of Financial Services Compensation Scheme (FSCS) claims between 2018 and the first half of 2019 — about £671 million (FCA).
• Existing rules: Policy Statement PS22/11 was published August 3, 2022; its SUP 12 rules took effect December 8, 2022.
• Supervisory follow-up: in a review published September 6, 2024, 96% of principals said they were very confident in their implementation; one in five had not completed the required self-assessment or annual review (FCA).
• Statutory levers: section 39 of the Financial Services and Markets Act 2000 (FSMA); Schedule 17 and section 226 (ombudsman jurisdiction); section 39A (tied agents), proposed for repeal.

Methodology and sources

This analysis rests on primary documents: HM Treasury’s February 2026 consultation paper and its August 2025 policy statement; the FCA’s Policy Statement PS22/11 of August 3, 2022; SUP 12 of the FCA Handbook; the FCA’s published appointed representatives dataset; the FCA’s multi-firm review of September 6, 2024; and the Final Notice issued to Alsford Page & Gems Limited on April 20, 2021. Comparative material comes from Article 29 of Directive 2014/65/EU (MiFID II), sections 916A, 916F and 917B of Australia’s Corporations Act 2001, and the Monetary Authority of Singapore’s representative notification framework under the Securities and Futures Act 2001. The window is December 2021 to September 2026. Figures are as published; where the FCA and HM Treasury give different population counts, both appear with their dates. Nothing here reflects the consultation outcome, unpublished at the time of writing.

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What the principal permission actually does

Today a firm needs no specific approval to become a principal. If it holds a Part 4A permission, it can appoint an AR under section 39 of FSMA, notify the FCA, and begin. The consultation changes the sequence. Acting as a principal would become a permission in its own right, which the FCA could grant, refuse, vary, cancel, or grant subject to terms, and could withhold where that advances its operational objectives. The model the government cites is section 55NA of FSMA — the permission a firm needs before approving another firm’s financial promotions, a design already tested in the promotions gateway and in the FCA’s approach to endorsements and marketing rules.

The principal permission is best understood as a sequencing change rather than a new standard. Under the proposal in HM Treasury’s February 12, 2026 consultation, an authorised firm would need express FCA permission before it could appoint any appointed representative, and the FCA could attach terms — a cap on AR numbers, a restriction on sectors, or a condition on oversight resourcing — at the point of grant rather than after harm surfaces. Existing principals would be deemed to hold the permission and would not reapply; new entrants would have the permission assessed inside the standard authorisation process. Critically, the government does not propose to amend section 39 itself to make the AR exemption conditional on the principal holding that permission. Responsibility for operating without it would sit with the principal firm, not with the AR, and the AR’s own exemption from the general prohibition in section 19 of FSMA would survive.

That last point is the difference between a gate and a trapdoor. A conditional exemption would have left every AR contract in a non-compliant network potentially void. The government declined to do that, producing a permission that constrains entry and gives supervisors a lever to pull without destabilising the existing book — the same logic the FCA applied when it turned Annex 1 registration into a supervisory gate rather than a formality.

Sources: HM Treasury consultation, February 12, 2026; FCA Handbook SUP 12; Directive 2014/65/EU Article 29; Corporations Act 2001 (Cth); Securities and Futures Act 2001 (Singapore); FINRA Rulebook. Last updated September 18, 2026.

How four jurisdictions allocate principal liability

The table exposes the UK’s outlier position, and it is not the permission gate — it is the liability formula. Section 39(3) of FSMA makes the principal responsible for the AR’s business “for which he has accepted responsibility.” Where an AR sells something the principal never took on, the principal is not liable, the AR is not authorised, and the consumer has historically had no route to the Financial Ombudsman Service (FOS) at all. Neither the EU nor Australia writes the rule that way.

The UK’s responsibility gap is a drafting artefact with a measurable consumer cost. Under section 39(3) of FSMA, a principal answers for its appointed representative only within the scope it has accepted in the AR agreement required by Regulation 3 of the Financial Services and Markets Act 2000 (Appointed Representatives) Regulations 2001. Step outside that scope and the chain breaks: the AR is unauthorised, the principal is not on the hook, and the ombudsman’s compulsory jurisdiction under section 226 of FSMA has nothing to bite on. Article 29(3) of MiFID II closes the same gap by making the investment firm “fully and unconditionally responsible” for its tied agent, and section 917B of Australia’s Corporations Act 2001 goes further still, fixing the licensee with responsibility “whether or not the representative’s conduct is within authority.” HM Treasury’s February 2026 proposal does not adopt either formula. It leaves section 39(3) alone and extends the ombudsman’s reach instead.

That is a deliberate choice, and it is defensible. Importing the MiFID II or Australian formula would make every principal an unlimited guarantor of conduct it never authorised and cannot price, driving the cost of regulatory hosting up and its supply down — the opposite of the growth objective the government lists first. Extending FOS jurisdiction instead keeps the liability perimeter where principals underwrote it while giving the consumer a determination against somebody. The government calls the direct-against-AR route a measure of last resort, available only where the principal is not responsible and only for complaints arising after a future implementation date, and expects no material additional FSCS claims. Principals keep initial complaint handling under DISP 1; the ombudsman gains power to join the AR as a party and make awards against it.

“While appointed representatives can bring innovation and choice, principals and ARs account for more than 60% of the total value of recent claims to the Financial Services Compensation Scheme.”

— Sheldon Mills, Executive Director for Consumers and Competition, Financial Conduct Authority (FCA press release, August 3, 2022)

Enforcement context: what happens when the principal cannot pay

The case that explains why HM Treasury is routing around section 39(3) rather than through it is Alsford Page & Gems Limited (APG), firm reference number 313489. On April 20, 2021 the FCA publicly censured APG over extended warranty insurance sold on its behalf by six appointed representatives between February 1, 2013 and March 21, 2016. The FCA found breaches of Principle 3 (management and control) and Principle 6 (customers’ interests): APG’s systems and controls were inadequate and its oversight of the ARs limited and ineffective. APG agreed to pay £399,902 in redress.

The penalty is the instructive part. The FCA calculated £958,100, discounted to £670,600 for early settlement — then imposed none of it, because APG established serious financial hardship and an inability to pay any amount. The outcome was a censure plus redress the firm could fund. That is the structural weakness of a regime in which the principal is the only regulated party in the chain: when the principal’s balance sheet fails, the enforcement tool fails with it, and the AR that conducted the sales sits beyond the perimeter. The same asymmetry runs through UK conduct enforcement more broadly, including cases where penalties are scaled to what a firm can bear rather than to the harm caused.

The FCA has not been idle. Its published AR data shows more than 1,300 ARs terminated by their principals between July 2022 and August 2023, 12 firms applying for voluntary requirements and one regulatory host ceasing business. But supervision has limits the FCA has itself documented. In the multi-firm review published on September 6, 2024 — roughly 250 firms surveyed by telephone and 23 assessed in depth — 96% of principals reported being very confident in their implementation of the PS22/11 rules, yet only 43% of annual reviews and 52% of self-assessments met the FCA’s quality bar, and about a third of principals were not using data or management information to check that ARs were operating inside their agreed scope. Confidence and evidence had come apart.

What this means for principals, ARs, hosts and compliance teams

Principals and regulatory hosts. Deemed permission is not a free pass. A permission the FCA can vary or cancel is a supervisory instrument, and the trigger for varying it is the evidence base the FCA already collects under SUP 12: the section 12.6A self-assessment, the annual review of each AR’s senior management, business and financial position, and the 10-calendar-day advance notification of any change to an AR’s permitted activities. Hosts running large networks — the 4% of principals with more than 50 ARs — should assume oversight ratios become a live question at the point of grant. More than 72% of hosting firms already maintain at least one full-time equivalent per five ARs.

Appointed representatives. An AR that has never been a respondent to an ombudsman complaint may become one. The exposure is narrow by design — only where the principal is not responsible — but it carries the ombudsman’s award and directions powers and is not obviously insurable on existing professional indemnity terms. ARs should read their agreement against what they actually sell: the scope clause is now the boundary of their own liability as well as the principal’s.

Legal and compliance teams. Three workstreams follow. First, reconcile the AR agreement’s accepted-responsibility scope against live product and distribution data, and close any activity outside it. Second, prepare for SM&CR conduct rules to apply directly to AR individuals other than ancillary staff, with fitness and propriety assessed by the principal under FCA rules rather than by individual FCA approval — removing roughly 38,000 approvals transfers the assessment burden onto the principal’s certification process. Third, plan for the repeal of section 39A, the tied-agent provision for UK MiFID investment firms, which the government considers redundant post-Brexit; firms relying on it need a migration path to section 39.

Fund managers and distributors. Consumer Finance, General Insurance and Protection, and Consumer Investments account for 92% of the AR population, and 85% of ARs generate under £250,000 in regulated revenue — a long tail of small firms whose compliance capacity will not absorb a new certification process without support from the principal.

“A key question will be how the FCA operates this gateway in practice, including how supervisory data will support proportionate and consistent decision-making.”

— Sushil Kuner, Partner and Head of Financial Services Regulation, and Josh Bates, Managing Associate, Freeths (Freeths, 2026)

What is next: the forward view

The consultation closed on April 9, 2026. Three sequencing questions remain open, and each carries implementation risk.

First, the legislation. A principal permission requires primary amendment to FSMA, and the government has not committed to a bill slot. The consultation gives no implementation date for the permission, for the FOS extension, or for the SM&CR migration.

Second, the FCA rulebook. Even after FSMA is amended, the FCA must consult on the terms attached to the permission, the certification mechanics for AR personnel, and any dedicated AR senior management function. That is at least one consultation paper and one policy statement, on the pattern the regulator followed for PS22/11 and for its phased crypto gateway. Operative rules before 2027 look unlikely.

Third, the parallel SM&CR review. HM Treasury published its response to the wider Senior Managers and Certification Regime consultation in April 2026. Applying SM&CR conduct rules to AR individuals while that regime is itself being reformed creates a moving target for principals building certification processes now.

Contested points to watch: whether deemed permission is the right default given the FCA’s own finding that one in five principals had not completed the required checks; whether the FOS extension stays genuinely narrow in practice; and whether the assumption of no material additional FSCS claims survives contact with a live insolvency. The UK’s willingness to diverge from continental formulas here fits its recent pattern of building bespoke gateways rather than importing them, as it did when it declined to copy MiCA.

TL;DR

HM Treasury’s consultation of February 12, 2026, closed April 9, 2026, would make acting as a principal a discrete FCA permission that can be refused, varied or cancelled, extend the Financial Ombudsman Service’s compulsory jurisdiction so it can determine complaints against an appointed representative directly where the principal is not responsible, apply SM&CR conduct rules to AR personnel in place of roughly 38,000 individual approvals, and repeal section 39A on tied agents. Section 39(3) of FSMA — and its “accepted responsibility” limit — is left untouched. Existing principals get deemed permission. The case for acting: principals and ARs accounted for 61% of the total value of FSCS claims between 2018 and the first half of 2019, about £671 million.

FAQ

What is an appointed representative under UK law?

An appointed representative is an unauthorised firm that carries on regulated activities under the authorisation of an FCA-authorised firm, its principal, relying on the exemption in section 39 of FSMA from the general prohibition in section 19. The principal must have a written agreement with the AR under Regulation 3 of the Appointed Representatives Regulations 2001 and accepts responsibility for the business covered by that agreement. About 34,000 ARs operate under roughly 2,400 principals.

Would existing principals have to apply for the new permission?

No. HM Treasury proposes that firms already acting as principals when the regime commences would be deemed to hold the permission without reapplying. The permission would be assessed as part of the standard authorisation process for new entrants. Deemed permission is not permanent, however: the FCA would be able to vary, restrict or cancel it in the same way as any other permission, which makes ongoing SUP 12 compliance the practical condition of keeping it.

When could the Financial Ombudsman Service rule against an AR directly?

Only where the principal is not responsible for the conduct complained about — that is, where the activity fell outside the scope the principal accepted under section 39(3). In those cases the ombudsman could join the AR as a party, make an award against it and give directions, using powers equivalent to those it holds over authorised firms. The extension would apply only to complaints arising after an implementation date still to be set, and principals retain first-line complaint handling under DISP 1.

How does the UK regime differ from MiFID II tied agents?

Article 29(3) of Directive 2014/65/EU requires the investment firm to remain “fully and unconditionally responsible for any action or omission” of its tied agent. Section 39(3) of FSMA limits the principal’s responsibility to business it has accepted. The EU formula leaves no responsibility gap; the UK formula does, which is precisely why HM Treasury is extending ombudsman jurisdiction rather than amending section 39. The UK is also proposing a permission gate that MiFID II does not require.

What did the FCA’s 2024 review find about principal oversight?

In findings published on September 6, 2024, drawn from approximately 250 telephone questionnaires and 23 in-depth assessments, 96% of principals said they were very confident they were implementing the PS22/11 rules effectively. The evidence was weaker: one in five firms had not completed the required self-assessment or annual review, 43% of annual reviews and 52% of self-assessments met the quality bar, and about a third of principals were not using data or management information to monitor whether ARs stayed within their agreed scope.

Does the reform change what ARs are allowed to do?

No. HM Treasury is explicit that the scope of activities an AR may conduct is unchanged, that the principal’s primary responsibility for oversight is unchanged, and that no change is proposed to the FSCS framework or funding model. The reforms are gateway, redress-route and conduct-standard changes layered onto the existing structure. A firm reading this as a rebuild of the AR regime would be reading it wrong; a firm reading it as cosmetic would be reading it wrong in the other direction.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.