Appointed Representative Regime Reform: What UK Firms Need to Know About the New FCA Rules

On 11 August 2025, HM Treasury published a significant policy statement that will fundamentally reshape how authorised firms appoint and oversee appointed representatives (ARs) in the UK financial services sector. These reforms represent the most substantial changes to the appointed representative regime since its inception and will have far-reaching implications for the approximately 34,000 ARs currently operating across the United Kingdom.

For principal firms and those considering appointing ARs, understanding these changes is not merely advisable—it is essential. The shift from a notification-based system to one requiring prior regulatory approval marks a fundamental departure from established practice and will require firms to rethink their operational strategies and compliance frameworks.

Understanding the Appointed Representative Regime

Before examining the reforms in detail, it is worth briefly reviewing the current framework. The appointed representative regime allows unauthorised persons to conduct regulated activities without obtaining their own authorisation from the Financial Conduct Authority (FCA), provided they act under the supervision of an authorised principal firm.

This arrangement has proven popular for businesses seeking to enter regulated markets without incurring the full cost and administrative burden of direct authorisation. For principal firms, the model offers opportunities to expand their distribution networks and market reach through carefully selected representatives.

However, the regime has not been without its challenges. Regulatory concerns about inadequate oversight, instances of consumer harm, and questions about principal firms' ability to effectively manage large AR networks have prompted calls for reform. These latest changes represent the Government's response to those concerns.

The Core Reforms: What Has Changed

Prior Permission Requirement

The most significant change introduced by the Treasury's policy statement is the shift from post-appointment notification to prior permission. Under the existing framework, principal firms can appoint an AR and subsequently notify the FCA of the arrangement. This has allowed firms to establish AR relationships relatively quickly, with regulatory scrutiny occurring after the fact.

From the implementation date of these reforms, principal firms will be required to obtain explicit permission from the FCA before appointing any new AR. This represents a fundamental change in the regulatory architecture and signals a more interventionist approach to supervision.

The FCA will assess applications against specific criteria, examining both the proposed AR and the principal firm's capability to provide adequate oversight. This assessment will likely consider factors including:

The principal firm's existing AR network and track record of supervision
The nature and scale of regulated activities the AR proposes to undertake
The adequacy of the principal firm's systems and controls
Any relevant history or regulatory concerns regarding either party
The principal firm's financial resources and professional indemnity insurance arrangements

Principal firms should anticipate that this process will add considerable time to the appointment process. Whilst the FCA has not yet published definitive timescales, experience with other permission regimes suggests that applications could take several months to process, particularly in the initial period following implementation as the regulator establishes its procedures.

Extended Financial Ombudsman Service Jurisdiction

The second major reform addresses a longstanding gap in consumer protection. Currently, where an AR has caused consumer detriment but the principal firm is not considered responsible (for instance, where the AR has acted outside the scope of its appointment), consumers may find themselves without recourse to the Financial Ombudsman Service (FOS).

The reforms extend FOS jurisdiction to cover complaints relating to ARs even where the principal firm is not deemed responsible for the AR's conduct. This change significantly enhances consumer protection but also creates new considerations for principal firms.

Whilst principal firms will not automatically be liable for AR misconduct outside the scope of appointment, they may still find themselves defending FOS complaints and managing reputational damage. This underscores the importance of robust appointment procedures, comprehensive contractual arrangements, and effective ongoing monitoring.

Why These Reforms Matter

The Government's decision to implement these reforms reflects genuine regulatory concern about the appointed representative model. Several high-profile failures and instances of consumer harm have highlighted vulnerabilities in the current framework, particularly regarding principal firms' capacity and willingness to provide adequate oversight.

The FCA's periodic reviews of the AR regime have consistently identified weaknesses, including:

Principal firms appointing ARs without conducting adequate due diligence
Insufficient monitoring of AR activities once appointed
Principal firms maintaining AR networks of a size or complexity that outstrips their supervisory capabilities
ARs operating beyond the scope of their appointments
Delays in principal firms terminating relationships with underperforming or non-compliant ARs

These reforms aim to address these failings by introducing greater regulatory oversight at the point of appointment and ensuring consumers have appropriate redress mechanisms when things go wrong.

For the wider financial services sector, these changes signal the FCA's continued focus on accountability and its willingness to fundamentally restructure regulatory frameworks where existing arrangements prove inadequate.

What This Means for Your Firm

For Existing Principal Firms

If your firm currently acts as principal to one or more ARs, these reforms require immediate attention, even though they primarily affect new appointments rather than existing relationships.

Transitional arrangements will be crucial. The Treasury's policy statement will be followed by detailed FCA rules, which should clarify how the new regime applies to existing appointments. Principal firms should monitor regulatory communications closely to understand any requirements to regularise existing AR relationships under the new framework.

Future planning must account for significantly extended appointment timescales. Where your business model relies on the ability to rapidly onboard new ARs, you will need to factor in the permission process. This may mean identifying potential ARs earlier, maintaining a pipeline of candidates at various stages of the approval process, or reconsidering your distribution strategy altogether.

Systems and controls will face greater scrutiny. If the FCA is to grant permission for new AR appointments, it must have confidence in your supervisory capabilities. Now is the time to review and strengthen your governance frameworks, monitoring systems, and management information. Demonstrating a strong track record of AR oversight will be essential to securing permissions.

Professional indemnity insurance arrangements should be reviewed. Extended FOS jurisdiction creates new potential liabilities, even where you are not ultimately responsible for AR conduct. Ensure your insurance arrangements provide adequate protection and consider whether coverage limits remain appropriate.

For Firms Considering Appointing ARs

If your firm is considering appointing ARs for the first time, or expanding your existing AR network, these reforms should inform your strategic planning.

The prior permission requirement means the appointed representative model may no longer offer the quick market entry it once did. You should compare the time and cost of obtaining permission to appoint ARs against the alternative of supporting potential partners through direct authorisation. In some cases, helping a distributor obtain its own authorisation may prove more efficient than navigating the new AR permission process.

You must also demonstrate to the FCA that you possess the necessary capabilities to supervise ARs effectively. This includes appropriate systems, controls, expertise, and resources. Firms without a track record of acting as principal should expect particularly close scrutiny and may need to make significant investments in their compliance infrastructure before pursuing AR appointments.

For Current Appointed Representatives

If your firm operates as an AR, these reforms create both challenges and opportunities. Whilst existing appointments should be protected by transitional provisions, the new regime may affect your relationship with your principal and your future options.

Some principal firms may respond to the reforms by consolidating their AR networks, potentially terminating relationships with smaller or higher-risk ARs to improve their supervisory position when seeking future permissions. ARs should engage proactively with their principals to understand their strategic intentions.

Conversely, the reforms may create opportunities for well-run ARs to differentiate themselves. ARs with strong compliance records and robust systems may become more attractive to principals precisely because they enhance the principal's prospects of obtaining FCA permission for future appointments.

For ARs considering changing principal or those whose principal relationship may be at risk, direct authorisation becomes an increasingly viable alternative. The FCA authorisation process may now compare more favourably with the reformed AR permission regime, particularly for established businesses with proven track records.

Practical Steps: Your Compliance Checklist

To prepare for these reforms, principal firms and ARs should consider the following action points:

Immediate Actions (Next 30 Days)

Review the Treasury policy statement in detail and ensure key stakeholders understand the core reforms
Assess your current AR relationships against the likely permission criteria to identify any vulnerabilities
Engage with your compliance advisers to understand the implications for your specific business model
Communicate with your ARs about the upcoming changes and their potential impact
Review your business plan to account for extended timescales for future AR appointments

Short-Term Actions (Next 90 Days)

Conduct a gap analysis of your systems and controls against expected FCA permission requirements
Strengthen monitoring arrangements for existing ARs, including enhanced management information and periodic reviews
Review and update contractual documentation with ARs to ensure comprehensive coverage of obligations and scope limitations
Assess your professional indemnity insurance in light of extended FOS jurisdiction
Develop documented procedures for due diligence, appointment, and ongoing supervision of ARs
Consider whether any existing AR relationships should be terminated ahead of the reforms

Medium-Term Actions (Next 6 Months)

Implement enhanced systems and controls identified in your gap analysis
Train relevant staff on the new requirements and your firm's enhanced procedures
Establish a pipeline approach for future AR appointments, factoring in permission timescales
Engage with the FCA (where appropriate) to discuss your AR strategy and seek guidance on permission applications
Monitor regulatory developments as the FCA publishes detailed rules and guidance
Consider strategic alternatives, including whether the reformed AR model remains optimal for your distribution strategy

For Firms Seeking AR Appointments

Pause any immediate AR appointment plans until the detailed FCA rules are published and implementation timescales confirmed
Use the interim period to strengthen your supervisory capabilities and develop robust systems and controls
Prepare comprehensive documentation demonstrating your capacity to oversee ARs effectively
Engage specialist compliance advice on navigating the permission process
Consider alternative distribution models and compare the reformed AR regime against other options

The Broader Regulatory Context

These reforms to the appointed representative regime do not exist in isolation. They form part of a wider regulatory landscape characterised by increased scrutiny, enhanced consumer protection, and greater accountability for authorised firms.

The FCA's recent focus areas—including the Consumer Duty, operational resilience requirements, and enhanced financial promotions rules—all reflect a common theme: firms must demonstrate not merely technical compliance but genuine good outcomes for consumers. The AR reforms align with this philosophy by ensuring that principal firms can effectively supervise their representatives and that consumers have appropriate protections when things go wrong.

Principal firms should therefore view the AR reforms not as isolated requirements but as part of a broader shift in regulatory expectations. The days of light-touch supervision and reactive compliance are firmly behind us. Authorised firms must now demonstrate proactive risk management, robust governance, and clear accountability for all aspects of their business, including activities conducted through appointed representatives.

Looking Ahead: Implementation Timeline

At the time of writing, the Treasury's policy statement sets out the Government's policy intentions, but the detailed requirements will be contained in FCA rules. The regulator is expected to consult on these rules in the coming months, with implementation likely in 2026.

Principal firms and ARs should monitor FCA communications closely for:

Consultation papers setting out the detailed permission requirements and application processes
Transitional provisions explaining how the reforms apply to existing AR relationships
Guidance on the FCA's expectations for principal firm oversight
Implementation timelines confirming when the new regime takes effect

Once the rules are finalised, firms should expect a transitional period before the permission requirement takes effect. However, prudent firms will not wait for the rules to begin preparation. The strategic and operational changes required to adapt to the new regime cannot be accomplished overnight.

How MEMA Consultants Can Help

Navigating these significant reforms to the appointed representative regime requires specialist expertise and a thorough understanding of FCA expectations. At MEMA Consultants, we have extensive experience supporting both principal firms and appointed representatives through regulatory change and can provide tailored guidance for your specific circumstances.

Our services include:

Regulatory gap analysis to assess your readiness for the reformed regime
Systems and controls design to meet FCA permission requirements
Application support for firms seeking permission to appoint ARs
AR due diligence to strengthen your appointment procedures
Monitoring framework development to enhance ongoing supervision
Training and support for compliance teams navigating the new requirements
Strategic advice on distribution models and regulatory structures

We can also support appointed representatives considering their options, including assisting with direct FCA authorisation applications where this represents the optimal strategic choice.

Conclusion

The reforms to the appointed representative regime announced by HM Treasury on 11 August 2025 represent a watershed moment for UK financial services regulation. The shift from notification to prior permission fundamentally alters the regulatory bargain for principal firms, whilst extended FOS jurisdiction enhances consumer protection.

For the approximately 34,000 ARs currently operating in the UK and the principal firms that supervise them, these changes demand careful attention and proactive preparation. The firms that will thrive under the new regime are those that begin adapting now—strengthening their systems, enhancing their controls, and demonstrating their commitment to effective supervision.

The appointed representative model remains a viable and valuable distribution channel, but only for firms willing to invest in robust governance and capable oversight. Those unable or unwilling to meet the FCA's enhanced expectations may need to reconsider their strategic approach.

As the regulatory detail emerges in the coming months, one thing is clear: the appointed representative regime of the future will be markedly different from that of the past. Firms that recognise this reality and adapt accordingly will be well-positioned to succeed in the reformed landscape.

Need Expert Guidance on the AR Regime Reforms?

The MEMA Regulatory Team specialises in helping UK financial services firms navigate complex regulatory change. Whether you're a principal firm preparing for the new permission requirements or an appointed representative considering your options, we can provide the expert support you need.

Contact us today for a confidential discussion about how these reforms affect your business and how we can help you adapt successfully.