A vital part of the UK insurance distribution landscape, the Appointed Representative (AR) regime provides a proportionate route to market, supports innovation, and enables firms to operate within a regulated framework without the costs of direct authorisation. However, regulatory scrutiny of the regime has intensified significantly in recent years and FCA Principals need to ensure they are not only on top of their existing regulatory obligations, but prepared for future ones, too.
The FCA has repeatedly signalled that weak governance and poor oversight by Principals is a primary driver of customer harm. There is also a belief that business written through AR’s leads to a greater proportion of complaints than business from directly authorised firms. For insurance brokers acting as Principals, effective governance of AR relationships is no longer a “nice to have”. It is a core regulatory obligation, and likely to become increasingly important as the government progresses with reforms to the regime.
The Starting Point: the Principal as “regulator”
Under section 39 of FSMA, activities carried on by an AR are treated by the FCA as having been carried on by the Principal itself and as a result, is held fully accountable for the AR’s regulated activities, systems and controls.
The FCA has been explicit: delegating activity does not mean delegating responsibility. This has been reinforced most notably through Policy Statement PS22/11, which significantly strengthened the oversight obligations applying to Principals with ARs.
Governance Expectations – FCA Handbook
1. Board Ownership and Senior Management accountability
AR oversight needs to be embedded at board and senior management level, be demonstrable, documented and capable of withstanding supervisory scrutiny
In practice, this means:
- A clearly identified individual with responsibility for AR oversight
- Regular board-level reporting on performance, risks and incidents
- Evidence that AR oversight is factored into the Principal’s risk appetite and business model decisions.
2. Robust Due Diligence
Principals must carry out thorough pre-appointment due diligence before onboarding any AR which must be proportionate to the nature, scale and complexity of the AR’s activities but also sufficiently rigorous.
As a minimum this includes:
- Verifying financial stability and funding
- Assessing competence, experience and operational capability
- Reviewing governance arrangements and key individuals
- Understanding business lines, revenue sources and intended customer base
- Confirming that activities fall squarely within the Principal’s permissions
- On-going due diligence – it should not be treated as a one-off exercise.
3. Clear Contracts and scope
The written agreement between Principal and AR is a critical governance control.
Contracts should clearly set out:
- The regulated activities the AR is permitted to undertake
- Any limitations or restrictions on business types
- Reporting and information-sharing obligations
- Rights of access, audit and termination
- Clear responsibility for compliance with FCA rules and the Consumer Duty
ARs operating outside scope due to vague or poorly controlled contractual arrangements, and Principals relying on the AR holding its own Professional Indemnity Insurance (PII), have been highlighted by the FCA as poor practice.
4. Ongoing Supervision and Monitoring
The FCA expects Principals to proactively monitor AR activity rather than relying on reactive reviews to identify and act quickly when ARs stray outside scope or create potential consumer harm.
Good practice includes:
- Regular compliance monitoring and thematic reviews
- File sampling proportionate to risk
- Ongoing financial and prudential monitoring
- Tracking AR complaints, breaches and remediation
- Monitoring changes in AR business models, staffing or growth
- Physical site visits to view the AR’s operation
5. Annual reviews and data reporting
Principals must perform and document annual AR reviews and a, self-assessment of their AR controls signed off by the firms governing body. In addition, enhanced reporting obligations apply, including submissions such as REP025 covering AR complaints data and revenue flows.
Where AR’s are inactive, the principal needs to understand why this is and in what timeframe regulated activity will commence.
6. Consumer Duty extends through the AR chain
The introduction of the Consumer Duty has materially raised expectations of AR governance.
Where the business is in scope for the duty, principals must ensure that:
- ARs understand and implement the Duty’s four outcomes
- Distribution strategies deliver fair value
- Customer outcomes are monitored across the AR population
- Issues identified at AR level feed into principal-level outcome testing and remediation
Consumer Duty obligations cannot be diluted through AR arrangements.
What is changing: HM Treasury reforms
In February 2026, HM Treasury launched a consultation proposing legislative reforms to the AR regime, building on its August 2025 policy statement. The consultation closed in April 2026, with outcomes expected later this year.
Key proposals include:
- A new FCA permission gateway for Principals, requiring firms to demonstrate they have adequate resources, systems and expertise before acting as a Principal
- Enhanced accountability, including potential extension of the Financial Ombudsman Service’s jurisdiction to ARs in certain circumstances
- Bringing ARs within the scope of SM&CR, aligning accountability standards more closely with authorised firms
The direction of travel is unmistakable: higher expectations on governance, stronger FCA intervention powers and a narrowing of tolerance for weak Principal-AR models.
What Principals should be doing now
Insurance intermediaries acting as Principals should already be:
- Stress-testing whether existing AR oversight frameworks would withstand a “gateway-style” FCA assessment
- Reviewing whether AR networks align with risk appetite and Consumer Duty obligations
- Ensuring AR governance is properly resourced, not treated as a bolt-on function
- Documenting the rationale for maintaining each AR relationship
Conclusion
The AR regime remains under intense regulatory scrutiny. For Principals, governance failures are no longer viewed as isolated compliance issues — they are treated as fundamental weaknesses in business models.
The FCA’s current rules, combined with the proposed HM Treasury reforms, make one thing clear: Principals must be able to demonstrate active, effective and accountable oversight of their ARs at all times.
For firms that invest in strong governance frameworks now, the regime can continue to deliver commercial and consumer benefits. For those that do not, regulatory risk will only increase.
This article was written by Sara Ager of GreenKite Associates, part of the GreenKite Group of insurance-focused professional services firms, as our guest contributor.
