Appointed Representatives Explained: How the AR Regime Works and When to Go Directly Authorised
An appointed representative (AR) is a firm or individual that carries on regulated activities without being authorised by the FCA, under the responsibility of an authorised firm known as its principal. The model lets thousands of advice, mortgage, insurance and investment businesses operate without full authorisation. But the principal is responsible for everything its ARs do, and the FCA has tightened its expectations of principals considerably. This guide explains how the AR regime works, what principals must do, and when an AR should consider becoming directly authorised.
What Is an Appointed Representative?
Under section 39 of the Financial Services and Markets Act 2000, an appointed representative is exempt from needing its own authorisation for the regulated activities its principal has agreed to accept responsibility for. The arrangement is set out in a written contract between the AR and its principal. The FCA’s rules for principals and ARs are in SUP 12 of its Handbook, and its expectations are summarised on its principals and appointed representatives pages.
ARs are common in:
- financial advice and wealth management, often through networks
- mortgage and protection advice
- general insurance distribution, including brokers and affinity partners
- investment management, through “regulatory hosting” arrangements
- consumer credit broking
Types of Appointed Representative
| Type | What they can do |
|---|---|
| Appointed representative | Carries on the regulated activities set out in its contract with the principal, within the principal’s permissions |
| Introducer appointed representative | Limited to introducing customers to the principal or other firms, and distributing certain non-real-time financial promotions. They can’t give advice or arrange deals |
| Tied agent | A specific type of AR acting for a MiFID investment firm |
The Principal’s Responsibilities
The principal is responsible, to the same extent as if it had expressly permitted it, for everything the AR does within the scope of the arrangement. That means the principal must:
Principal’s responsibilities
- Assess the AR’s suitability, and that of the people running it, before appointment
- Notify the FCA before appointing a new AR, within the required notice period
- Oversee and monitor the AR’s regulated activities and the outcomes for its customers
- Make sure the AR’s staff are competent and its financial promotions are compliant
- Handle complaints about the AR’s regulated activities
- Review each AR relationship regularly, including whether it should continue
- Have enough resources and expertise to oversee all its ARs
- End the arrangement properly where the AR doesn’t meet the required standards
The FCA strengthened its rules for principals in 2022, after finding poor oversight and consumer harm in some AR models. Principals now face more detailed requirements on assessing and monitoring ARs, providing information to the FCA and reviewing each relationship.
Accountability Under the Senior Managers Regime
At the principal, oversight of ARs is a significant responsibility that should be clearly allocated to a Senior Manager, usually the chief executive or the compliance officer, and supported by a team with enough capacity. The Senior Managers regime doesn’t apply to the AR itself in the same way: individuals at ARs who perform certain controlled functions are generally covered by the earlier approved persons regime, which continues to apply to ARs. Principals should check the current requirements for their ARs’ staff.
Firms that host many ARs, or that have grown quickly, often need to strengthen their compliance teams. Our compliance officer recruitment service covers SMF16 appointments for principals, and our page on fractional and interim cover supports firms that need extra oversight quickly.
Advantages and Disadvantages of Being an AR
| Advantages | Disadvantages |
|---|---|
| No need for full authorisation; faster to start | Dependence on the principal’s permissions, policies and continued willingness |
| Compliance support and oversight from the principal | Less control over the proposition, products and processes |
| Lower regulatory costs and capital requirements in many cases | Network or hosting fees, often linked to revenue |
| Access to the principal’s systems and expertise | The principal can end the relationship, sometimes at short notice |
When to Become Directly Authorised
Many ARs eventually decide to apply for their own authorisation. Common reasons include:
- growth, making network or hosting fees expensive
- wanting control over the proposition, products and branding
- wanting to sell the business, where buyers often prefer directly authorised firms
- concerns about the principal’s own stability or approach
- the principal tightening its oversight or ending the relationship
Becoming directly authorised means taking on everything the principal provided: compliance monitoring, financial crime controls, training and competence, complaints handling and regulatory reporting. It also means appointing approved Senior Managers, including a compliance officer and MLRO. Our guide to going directly authorised explains the Senior Managers you’ll need and the timetable.
A mortgage and protection broker with twelve advisers has been an AR of a network for eight years. Network fees have grown with its revenue, and the founders want more control over their proposition. They decide to apply for direct authorisation. Before applying, they appoint a fractional compliance officer and MLRO with mortgage experience, set up outsourced file checking, and plan the move of their advisers and clients with the network. The application names the two founders as directors and the fractional compliance officer as SMF16 and SMF17.
Regulatory Hosting
In investment management, many new fund managers start as ARs of a “regulatory host”: a principal whose business is providing regulatory cover to emerging managers. Hosting can be a quick way to launch a fund or strategy, but the same principles apply. The host is responsible for the AR’s regulated activities, and the FCA has scrutinised hosting models closely. Managers planning to grow should consider early when, and how, they’ll seek their own authorisation. See our investment managers sector page.
Choosing a Principal
For businesses deciding whether to become an AR, the choice of principal matters. Questions to ask include how the principal oversees its ARs, what support it provides, how it handles complaints, how fees are calculated, how stable it is, and how the arrangement can be ended. A principal under supervisory pressure may tighten its requirements or end relationships suddenly.
For Principals: Staffing AR Oversight
Overseeing ARs well needs people: compliance monitoring staff, file reviewers, financial promotions specialists and a compliance leader with authority over the AR network. The FCA has been critical of principals that took on more ARs than they could oversee. Our governance and SMF structure review can help principals check that responsibilities for AR oversight are clearly allocated and adequately resourced.
ARs and Principals
Recruitment and guidance for appointed representatives and the firms that oversee them. Every SMF search is led personally by Adrian Lawrence FCA
Going Directly Authorised
Leaving a network or principal.
→ The Senior Managers you’ll need
→ Authorisation support
Compliance Leadership
For principals and newly authorised firms.
→ Compliance officer (SMF16)
→ MLRO (SMF17)
Advice Firms
Where ARs are most common.
→ Wealth and advice firms
→ RDR-qualified Senior Managers
Flexible Cover
Fractional and interim.
→ Fractional and interim cover
→ Fractional or full-time?
Every SMF search is led personally by Adrian Lawrence FCA
Frequently Asked Questions
What is an appointed representative?
A firm or individual that carries on regulated activities without its own FCA authorisation, under the responsibility of an authorised principal.
What is an introducer appointed representative?
An AR limited to introducing customers and distributing certain financial promotions. It can’t advise or arrange deals.
Is the principal responsible for its ARs?
Yes. The principal is responsible for the AR’s regulated activities within the scope of their arrangement, as if it had carried them out itself.
Do AR staff need FCA approval?
Individuals at ARs performing certain controlled functions generally need approval under the approved persons regime, which continues to apply to ARs. The principal should check the current requirements.
How do we go from AR to directly authorised?
By applying to the FCA for your own permissions, with approved Senior Managers, compliance arrangements and enough resources. See our guide to going directly authorised.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He leads every SMF Capital search personally, including compliance officers and MLROs for firms leaving appointed representative networks. View Adrian’s ICAEW profile.
Leaving a Network or Strengthening AR Oversight?
Whether you’re going directly authorised or overseeing a growing AR network, tell us about your hire. We’ll help you find the right compliance leadership.