Appointed Representatives: Where does the buck stop when it comes to Financial Advice?

The relationship between Principal Firms and Appointed Representatives has long been an area of regulatory complexity. In our March 2025 article, [1] ‘Knowing your ARs from your elbow’, we highlighted the vulnerabilities faced by Principal Firms in respect of potential liabilities that could arise from Appointed Representative (AR) frameworks. At the time, a Court of Appeal decision in KVB Consultants Ltd and others v Jacob Hopkins McKenzie Ltd and others had held the Principal Firm liable for activities carried out by the AR, irrespective of whether these activities had been explicitly prohibited under contract and/or undertaken without the necessary legal permission. The Principal Firm subsequently appealed to the Supreme Court to challenge the ruling.

As of April 2026, the Supreme Court definitively overturned the Court of Appeal’s decision [2], stipulating a narrower and more permission-based interpretation of principal liability under the AR regime. The ruling will be welcomed by many Principal Firms, with a Principal Firm’s responsibilities confined to the activities it has agreed to oversee and for which it holds the relevant FCA permissions. The outcome gives greater clarity around a Principal Firm’s legal responsibilities when Appointed Representatives act outside of their authorised scope and lifts the legal uncertainty created by the Court of Appeal’s earlier ruling. Despite the legal position now being clarified, the supervisory burden on Principals remains significant and places renewed importance on precise, well-drafted AR contractual agreements.  

Although the Supreme Court’s decision provides much needed clarity for Principal Firms and indeed their insurers, with risk exposures now more quantifiable and better defined, the reality is that legal cases involving Financial Advisory Firms are rare. Instead, the Financial Ombudsman Service (FOS) tends to be the preferred option, offering a more cost-efficient alternative for dispute resolution, and with the FOS award limit progressively increasing, the expectation is that these types of legal cases will become even more infrequent. It would make little financial sense to pursue a claim through the courts unless losses exceed the FOS award limit, which as of 1st April 2026 is now set at £455,000 [3]. In contrast to the courts, the FOS is the sole judge of fact in disputes it considers; although the FOS must have due regard for the law, it is ultimately not bound by case law. The FOS will decide what is fair and reasonable in the circumstances it is presented with, and its decisions will be binding on the Principal Firm. Critically, the FOS expects Principal Firms to maintain strong supervisory control and holds them responsible for the full extent of activities carried out by their ARs, even where such activities are concealed.

While unauthorised transactions can occasionally be defended, the default FOS position is that liability will tie back to the authorised firm, particularly where the client is or believes themselves to be a client of that firm. This was demonstrated when an unnamed Financial Advisory Firm incurred over £2m in liability, despite having previously been deemed not to be liable following legal advice received by insurers. Contrary to this legal interpretation, the FOS later found against the Principal Firm. The basis for this decision was that the claimant had set up a Self-Invested Personal Pension with the Principal Firm, into which investments arranged by the AR were later transferred.

Whilst the Supreme Court’s ruling is a welcome development, the practical takeaway is that Principal Firms should not assume the ruling eliminates their liability and should be mindful they remain at risk, particularly when being considered by the FOS.

With award winning specialist teams and deep expertise across the Wealth sector, we are well placed to help guide your firm toward the most appropriate solution, protecting both your organisation and your clients.

[1] https://www.howdengroup.com/uk-en/ars-and-pi-coverage 
[2]  https://www.hoganlovells.com/en/publications/uk-supreme-court-rules-on-the-scope-of-liability-of-principals-for-their-appointed-representatives#:~:text=The%20Supreme%20Court%20has%20upheld,their%20liability%20for%20their%20ARs.
[3]  https://www.financial-ombudsman.org.uk/news/fca-confirms-increase-award-limits-2