Appointed Representative Regime: FCA Crackdown and What Principals Must Do

The Appointed Representative (AR) regime has been under intense FCA scrutiny since the regulator identified systemic weaknesses in how principals oversee their AR networks. Through PS22/11, in force since 8 December 2022, the FCA introduced annual reviews, a self-assessment and new reporting duties for principals. HM Treasury then consulted from 12 February to 9 April 2026 on further reform. This article examines the current regulatory position and provides practical guidance for principals.

Background: Why the FCA Intervened

The AR regime allows firms to carry on regulated activities under the authorisation of a principal firm, without obtaining their own FCA authorisation. It is common in investment, insurance distribution and mortgage business, and each sector has its own route to direct authorisation for ARs that outgrow the model. While the regime provides a flexible route to market, the FCA identified significant risks: principals were appointing ARs without adequate due diligence, failing to monitor AR activities on an ongoing basis, and not taking timely action when compliance failures were identified.

The FCA's thematic review of the AR regime found that some principals were treating AR appointment as a revenue-generating activity with minimal oversight, creating a channel for poor conduct, mis-selling and financial crime to enter the regulated system through the back door.

Enhanced Regulatory Requirements

REP025 annual return. Principals submit the REP025 return each year through RegData, within 60 business days of their accounting reference date. It reports the revenue each AR generates and complaints data. Principals must also confirm their AR details in FCA Connect each year and report AR changes as they happen.

Annual review and self-assessment. Principals must review each AR's activities and fitness every year, and complete an annual self-assessment of whether their own oversight meets the rules. The self-assessment is kept on file and available to the FCA on request.

Pre-appointment due diligence. The FCA expects principals to conduct thorough due diligence before appointing an AR, including assessment of the AR's competence, financial standing, compliance history and business model. The due diligence must be proportionate to the risk presented by the AR's proposed activities.

Ongoing monitoring. Principals must implement a structured ongoing monitoring programme covering: regular review of AR activities and customer outcomes, compliance testing, complaint analysis, financial monitoring and periodic fitness and propriety reassessment of AR key individuals.

Complaints and redress. Principals are responsible for handling complaints about their ARs and must ensure that customers receive fair outcomes. The FCA expects principals to analyse complaint data for systemic issues and to take corrective action where patterns emerge.

Common Compliance Failures

The FCA has identified several recurring failures in principal oversight:

1. Pre-appointment due diligence that is superficial or formulaic.
2. Monitoring programmes that are infrequent, narrow in scope or poorly documented.
3. Failure to act on identified compliance issues: tolerating non-compliance rather than requiring remediation or terminating the appointment.
4. Inadequate systems for tracking AR activities and customer outcomes.
5. REP025 returns that are inaccurate or incomplete.

Enforcement Risk

The FCA has made clear that principals are directly responsible for the regulatory compliance of their appointed representatives. Its tools include fines, requirements to restructure AR networks and restrictions on appointing new ARs.

HM Treasury's 2026 Reform Proposals

HM Treasury consulted from 12 February to 9 April 2026 on reforming the regime. The main proposals:

HM Treasury will decide whether to legislate after considering the responses. Principals should plan on the basis that oversight standards will rise.

What Principals Should Do Now

1. Conduct a comprehensive review of your AR oversight framework against FCA expectations and recent enforcement findings.
2. Assess the adequacy of your pre-appointment due diligence process.
3. Review and strengthen your ongoing monitoring programme.
4. Ensure REP025 reporting is accurate, complete and submitted on time.
5. Analyse complaint data for systemic themes and implement corrective action.
6. Consider whether your current AR network is appropriately sized and managed for your oversight capacity.

Regulatory Counsel advises principal firms on AR oversight frameworks, REP017 compliance and regulatory risk management. Contact us for a written proposal.