Appointed representative vs direct authorisation

What an appointed representative is under FSMA

An appointed representative is defined in section 39 of the Financial Services and Markets Act 2000. It is a person who has entered into a written contract with an authorised firm, the principal, that permits or requires it to carry on business of a prescribed description. Where those conditions are met, the appointed representative is exempt from the general prohibition and can carry on the specified regulated activities without being directly authorised itself.

The exemption is not unconditional. Section 39 requires the principal to accept responsibility in writing for the business the appointed representative carries on. It also states that the principal is responsible, to the same extent as if it had expressly permitted it, for anything the appointed representative does or omits to do in carrying on that business. In effect, the principal takes on liability for the conduct of the appointed representative within the agreed scope.

There are limits on what the exemption can cover. Section 39 restricts its availability for certain activities, including some investment firm activities, mortgage intermediation and structured deposit business, unless the appointed representative is entered on the relevant FCA register. The route does not fit every business model.

The FCA describes an appointed representative as a person who carries on regulated activity under the responsibility of an authorised firm. That responsibility sits at the heart of the regime and explains why the FCA places demanding expectations on principals.

What direct FCA authorisation involves

Direct authorisation means applying to the FCA in your own name for permission to carry on specific regulated activities. Rather than relying on another firm's permissions, an authorised firm holds its own scope of permission and answers to the FCA directly across its whole business.

To be granted authorisation, a firm must satisfy the FCA's threshold conditions. These are the minimum standards a firm must meet to be authorised and to remain so, covering matters such as location of offices, effective supervision, appropriate resources and suitability. The FCA assesses these conditions not just at the point of application but on an ongoing basis.

The FCA frames its assessment around whether an applicant is ready, willing and organised. Ready means submitting final, thoroughly reviewed documentation. Willing means being open and honest and responding promptly to information requests. Organised means having the arrangements and documentation in place to comply with the rules from the day authorisation is granted.

Authorised firms must also comply with the FCA's Principles for Businesses and the relevant rulebook requirements directly and continuously. There is no principal standing between the firm and the regulator, which brings both independence and full accountability for compliance.

The principal and appointed representative relationship

Chapter SUP 12 of the FCA Handbook governs the relationship. It requires a written contract between the principal and the appointed representative, and makes clear that the principal accepts responsibility for the regulated activities the appointed representative carries on within the agreed scope.

SUP 12 places continuing duties on the principal. Before appointment and on a continuing basis afterwards, the principal must have reasonable grounds to be satisfied that the appointed representative is suitable and solvent, and that there are no close links or other circumstances likely to prevent effective supervision. The principal must have adequate controls and resources to monitor and enforce compliance by the appointed representative.

The FCA is explicit that the principal remains accountable to the regulator. According to FCA guidance, the principal is responsible for making sure the appointed representative is fit and proper and complies with the FCA's rules. This is why the model is described as operating under a principal's regulatory umbrella.

For the appointed representative, this means less direct regulatory contact but real dependence on the principal. If the principal withdraws its acceptance of responsibility, or its own permissions are affected, the appointed representative's ability to trade can be curtailed. The commercial relationship, including any fees the principal charges, therefore matters as much as the regulatory one.

The 2022 reforms to the appointed representative regime

In Policy Statement PS22/11, the FCA confirmed a package of improvements to the appointed representative regime. The new rules took effect on 8 December 2022 and were designed to enhance consumer protection and help protect markets across the sectors where principals and appointed representatives operate.

The FCA's central concern was that where harm occurs it is often because principals do not carry out adequate due diligence before appointing an appointed representative, or because of poor ongoing control and oversight. The reforms responded by strengthening the responsibilities of principals.

Under the reforms, principals must complete adequate due diligence before appointment, review each appointed representative's fitness and propriety and, for appointed representatives other than introducer appointed representatives, review their financial position at least annually. Principals must also carry out and document an annual review of each appointed representative's activities, business and senior management, and prepare a self-assessment of their oversight arrangements.

The reforms also increased the information principals must provide to the FCA. Principals must notify the FCA of changes to the regulated activities an appointed representative may carry on at least 10 calendar days before the change takes effect, and provide enhanced data on their appointed representatives. These changes raised the compliance burden on principals, and indirectly the diligence expected of firms choosing this route.

Comparing cost, control, speed and obligations

The two routes trade off along four practical dimensions: cost, control, speed to market and the obligations that fall directly on your firm. Neither is objectively better; the right answer depends on your business model and appetite for responsibility.

The appointed representative route usually offers a faster and cheaper start because you rely on a principal's existing permissions instead of building an application pack and satisfying the threshold conditions yourself. The trade-off is reduced independence, ongoing fees to the principal and a scope limited to what the principal permits and oversees.

Direct authorisation gives you full control of your permissions, but it requires you to meet the threshold conditions, absorb the application cost and time, and take on continuous compliance obligations without a principal to lean on. The table below summarises the comparison using facts from the sources cited in this guide.

One further consideration is direction of travel. Some firms start as an appointed representative to reach the market quickly, then apply for direct authorisation once they have built systems, controls and a track record. The strengthened 2022 obligations mean principals now scrutinise prospective appointed representatives more closely, so preparation matters on both routes.

How to choose the right route for your firm

Start by mapping the regulated activities you need against what a prospective principal can permit. If your business falls outside a principal's own permissions, or within the activities that section 39 excludes from the exemption unless registered, the appointed representative route may not be viable and direct authorisation becomes the realistic path.

Weigh speed and lower upfront cost against long-term control. A firm entering the market quickly may favour the appointed representative route, accepting ongoing fees and a defined scope for a faster start. A firm building a standalone, scalable regulated business often prefers direct authorisation so that its permissions and reputation are its own.

Consider how a principal will view you. Under the 2022 reforms a principal must be satisfied about your suitability, solvency and fitness before it appoints you, and must review you at least annually. Being ready to evidence sound systems and controls helps on either route.

Whichever route you consider, prepare the evidence early. For direct authorisation, that means a complete, final application pack that demonstrates you are ready, willing and organised. For the appointed representative route, it means a business plan and controls that will satisfy a principal's due diligence. Structured preparation is the core focus of the Nasara Authorise toolkit.

Conclusion

The appointed representative vs authorisation choice comes down to a trade-off between speed and lower upfront cost on one side, and independence and direct control on the other. The appointed representative route lets a firm rely on a principal's permissions under section 39 of the Financial Services and Markets Act 2000 and chapter SUP 12 of the FCA Handbook, while direct authorisation gives a firm its own permissions in return for meeting the threshold conditions and taking on continuous obligations. The FCA's 2022 reforms in PS22/11 have raised the bar for principals, so careful preparation matters on both paths.

There is no single right answer, only the route that best fits your activities and appetite for regulatory responsibility. Weigh the cost, control, speed and obligations set out above against your business plan, and prepare your evidence early. This article is educational and not regulatory or legal advice; for structured support in mapping and evidencing your chosen route, explore the Nasara Authorise toolkit.

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