Appointed representative or direct FCA authorisation?

An appointed representative (AR) carries on regulated activity under the responsibility of an authorised firm, known as the principal. Under section 39 of the Financial Services and Markets Act 2000 (FSMA), an AR is an exempt person for the business its principal has accepted responsibility for. The AR must not itself be an authorised person, and needs a written contract with the principal.

The principal is responsible, to the same extent as if it had expressly permitted it, for anything the AR does or omits to do in that business. It must make sure the AR is fit and proper, financially stable and complies with the FCA's rules. An introducer appointed representative (IAR) is narrower: its scope is limited to effecting introductions and distributing non-real time financial promotions.

A directly authorised firm holds its own Part 4A permission. It becomes responsible for compliance with the rules, the liabilities of its business and its own senior management arrangements. It must show the FCA it meets the threshold conditions and that it is ready, willing and organised.

The AR exemption works only for the types of business set out in the Appointed Representatives Regulations, and only for activities the principal has agreed to take responsibility for. The FCA's Handbook says regulated claims management activity is not business for which an AR may be exempt.

Payments are a different regime. A payment institution registers its own agents under the Payment Services Regulations 2017, and an agent of an e-money institution is registered by its principal under the Electronic Money Regulations. Do not call these FSMA appointed representatives.

An AR does not need its own authorisation, but the principal still has to onboard and assess it, and then oversee it on an ongoing basis. The fee model may be fixed, revenue-based or mixed. The principal may control products, approved suppliers, sales materials and sometimes customer contact or data.

Direct authorisation needs more internal capability at the start, and a firm that wants control of its products, providers and regulatory relationships may find it worth the effort. It does not remove the cost of compliance, reporting or, for some firms, professional indemnity insurance. Compare the total cost over 24 months, including the cost of leaving, not just the first invoice.

The same applies to a motor finance introducer that starts under a principal and later wants broader lender access, more control over commission or extra credit activities. Do not carry on activities outside the agreed scope while you plan the transition.

A principal must notify the FCA at least 30 calendar days before an appointment takes effect. It must review each AR at least every 12 months, looking at senior management's fitness and propriety, the AR's financial position and the adequacy of its own controls and resources. It must keep a written record of each review.

Use an AR where the principal relationship genuinely fits the model and oversight can work. Choose direct authorisation when independent permissions and operating control outweigh the initial effort. The FCA also lists signs that an AR should consider moving: it has become larger than its principal, there are conflicts of interest in the model, or the business no longer aligns with the principal's direction.