Appointed Representatives reform: a gateway to prevention or a barrier to competition?

HM Treasury’s (HMT) August 2025 policy statement signals a significant shift in how the appointed representatives (ARs) regime could operate. The proposals follow years of scrutiny of the AR model and renewed political pressure after the collapse of Greensill Capital. They raise a fundamental question: can the regime still balance market access and innovation with consumer protection?

Why reform, and why now?

The AR framework was created to widen market access by allowing firms to carry on regulated activities under the oversight of an authorised principal, without the cost of direct authorisation. It has been particularly popular in insurance distribution, investment services, and marketing. However, the model has long been a source of concern. ARs consistently account for higher levels of misconduct and consumer complaints than fully authorised firms.

The collapse of Greensill Capital in 2021, where an entity operated as an AR of Mirabella Advisers LLP, highlighted the risks in dramatic fashion and brought the regime under sharp political scrutiny. Against this backdrop, MPs urged reform. The FCA introduced tougher oversight rules in 2022, but HMT has now concluded that further legislative change is also required to close the gaps.

The proposals

The Government has put forward two targeted reforms intended to raise oversight standards and improve consumer protection.

1. FCA “regulatory gateway” for principals
   
   Currently, any authorised firm can appoint ARs. While the FCA reviews firms’ suitability for direct authorisation, it does not specifically assess their capacity to supervise others. The proposed gateway would amend the Financial Services and Markets Act 2000 (FSMA),  so that only firms with explicit FCA permission can act as principals. This permission could be granted with conditions, varied or withdrawn if standards fall short, and would subject firms to closer scrutiny. Existing principals may be allowed to continue under transitional provisions, rather than having to apply immediately for permission, but they would still face ongoing regulatory oversight.
   
   
2. Extension of FOS jurisdiction
   
   At present, the Financial Ombudsman Service (FOS) investigates complaints against principals, not ARs. This leaves consumers without redress where ARs act outside the scope of their appointment. The proposal would give the FOS jurisdiction to investigate ARs directly in such cases, enabling complaints to be pursued even where the principal is not responsible.

Implications for firms and consumers

If enacted, these reforms will raise the stakes for both principals and ARs.

For principals, the bar to act will be higher. Firms will need to demonstrate robust governance, systems, and resources for AR oversight. Transitional arrangements may offer breathing space for existing principals, but the direction of travel is clear: the FCA will expect much higher standards. Those using ARs in limited or ancillary ways (for example, group marketing) may conclude that the costs outweigh the benefits.

For ARs, the impact could be equally significant. Smaller firms may find increased oversight demands and potential FOS funding contributions too onerous. Some may exit the model altogether, while others consolidate under larger principals with established compliance infrastructures. For those that adapt, however, a stricter regime could improve perceptions of the AR regime, which has been tarnished by weaker participants.

For consumers, the reforms close a clear gap: complaints will no longer fall away when ARs act outside their remit. But challenges remain. The FOS will need the resources and expertise to handle a larger and more complex caseload.  Disputes over whether a principal bears responsibility are unlikely to disappear. Moreover, extending FOS jurisdiction does not eliminate the need for strong FCA supervision. As Greensill demonstrated, failures often straddle both conduct and prudential risks, requiring coordinated regulatory action.

Key takeaways

The Government’s proposals mark a decisive shift in the AR regime. By requiring principals to pass through a new regulatory gateway and extending the FOS’s jurisdiction, the reforms will raise the bar on oversight and strengthen accountability.  They will also help close long-standing gaps in consumer redress.

Yet, the same measures risk creating a barrier to competition. Higher entry costs, greater scrutiny, and the prospect of direct FOS exposure may deter smaller ARs and principals, concentrating the market in the hands of larger players.

Comment

Whether the reforms ultimately protect consumers without stifling innovation will depend not only on legislative progress but also on the FCA’s and FOS’s ability to resource and deliver on their expanded mandates. For now, principals should assume a more demanding regime is coming. They should begin preparing by strengthening systems and governance frameworks.  They should also stress-test whether the AR model remains commercially viable.

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