How far can a principal be held responsible for the actions of its appointed representative? In Kession v KVB, the Supreme Court has drawn a clearer line around the scope of responsibility under section 39 FSMA, confirming that a principal is not automatically responsible for every regulated activity carried out by its AR. The decision has important practical implications for principals, ARs and consumers, particularly where business is conducted outside the scope of an agreed appointment.

In April 2026, the Supreme Court handed down its decision in Kession Capital Ltd (in liquidation) v KVB Consultants Ltd and others [2026] UKSC 11, providing important guidance on the scope of a regulated hosting firm’s responsibility as principal (“P”) for its appointed representatives (“ARs”) under section 39 of the Financial Services and Markets Act 2000 (“FSMA”).

Collyer Bristow acted for Kession Capital Ltd (“Kession”) in its appeal against the High Court’s summary judgment decision, which was subsequently heard in full by the Supreme Court.

The appeal concerned whether P’s responsibility under section 39 extends to all regulated activities carried on by its AR, or only to those activities falling within the scope of responsibility it has agreed to assume under the Appointed Representative Agreement (“ARA”), including activities the principal itself was not authorised to undertake.

In a decision which supports the regulatory hosting business model the Supreme Court unanimously held that responsibility under section 39 is confined to the scope of business for which the principal has accepted responsibility.

The Appointed Representative Regime

Unless an exemption applies, Section 19 FSMA prohibits carrying on regulated activities without Financial Conduct Authority (“FCA”) authorisation; this is known as the “general prohibition”.

Section 39 (1) FSMA creates an exemption to the general prohibition, allowing an unauthorised person to carry on regulated activities as an AR subject to:

• the AR and P entering into a written contract under which P agrees to accept responsibility for the whole or part of the business to be undertaken by the AR.
• the AR being entered on the FCA register.

Additionally, Section 39(3) FSMA provides that P is responsible for anything done or omitted by the AR in carrying on the business for which responsibility has been accepted.

FSMA Section 39 (4) provides that anything which AR has done or omitted as respects business for which P has accepted responsibility is to be treated as having been done or omitted by the P, although per Section 39(6) FSMA, where an offence has taken place the knowledge or intentions of AR will only be attributed to P if in all the circumstances it is reasonable for them to be attributed to P.

This appeal focused on the interpretation of the phrase “whole or part of” in section 39(1)(b), and whether a principal may accept responsibility for only part of an AR’s business under Section 39 (3) FSMA.

Background

Kession, an FCA-authorised regulatory hosting firm, appointed Jacob Hopkins McKenzie Ltd (“JHM”) as its AR in June 2015. The ARA limited JHM to advising on and arranging investments for professional clients and eligible counterparties and expressly excluded retail clients, reflecting the limitations of Kession’s own regulatory permissions.

Despite those restrictions, between 2015 and 2019, JHM promoted a number of property investment schemes to retail investors, who subsequently suffered losses of approximately £1.7 million. Kession’s position was that it had no reason to suspect JHM was acting outside the scope of its appointment and that it was entitled to rely on JHM to deal only with the class of clients with which it was permitted to trade under the ARA.

With both JHM and the scheme companies insolvent, the multiple claimants applied for summary judgment, arguing that Kession was responsible for all JHM’s activities under section 39 notwithstanding the restrictions contained in the ARA and Kession’s own regulatory permissions.

The High Court granted summary judgment against Kession on the section 39 issue, and the Court of Appeal upheld that decision by a majority. The Supreme Court unanimously overturned those decisions and although the appeal arose from an application by the claimants for summary judgment, the Supreme Court determined that the issue had been fully argued and, by allowing the appeal, the Supreme Court ruled as a final decision that Kession had no responsibility under section 39(3) for anything done or omitted by JHM in carrying on business with retail clients.

The Supreme Court’s Decision

The Supreme Court held that responsibility under section 39 FSMA is confined to the “part of the business” for which the principal has agreed to accept responsibility. The existence of an AR relationship does not, of itself, render the principal responsible for all regulated activities carried on by the AR.

On the facts:

• dealing with retail clients constituted a distinct part of JHM’s business;
• Kession had agreed to accept responsibility only for business involving professional clients and eligible counterparties;
• JHM’s retail client activity fell outside the scope of Kession’s responsibility.

Accordingly, Kession was not responsible under section 39 for JHM’s dealings with retail clients. As Lord Richards observed at paragraph 71 of the Supreme Court judgement: “there would seem to be an element of regulatory overkill, and indeed unfairness, in making an authorised person responsible for an appointed person’s activities in dealing with retail clients when it is expressly prohibited from doing so by the terms of its appointment.”

As Lord Richards observed, the AR’s exemption under section 39 and the principal’s responsibility under section 39(3) are “coterminous”, both depending on the same defined scope of business agreed between the parties.

The Supreme Court also confirmed that the distinction between retail and professional clients is capable of defining a separate part of an AR’s business, rather than merely regulating how that business is conducted.

The judgment also carries an important regulatory consequence. Where an AR carries on regulated activities outside the scope of the principal’s accepted responsibility, the section 39 exemption may no longer apply, potentially exposing the AR to regulatory enforcement action and, in some circumstances, criminal liability.

Practical Implications

Reduced scope for claims against principals  

The decision narrows the circumstances in which principals may be pursued as a default defendant. Where an AR acts outside the agreed scope of its authority, recovery against the principal may not be available, even where the AR is insolvent. This may leave claimants with more limited avenues of recovery than previously assumed.

Regulatory expectations remain high

However, the judgment does not diminish the FCA’s expectations of principals or their obligation to supervise ARs effectively. The FCA has highlighted significant concerns about consumer harm and misconduct linked to ARs and has responded with enhanced oversight rules and more intensive supervision of principal firms.

Principals must continue to maintain robust systems and controls, effective oversight arrangements, and active monitoring to prevent ARs from operating beyond their agreed scope. A principal may avoid liability in private law under section 39 while still facing regulatory scrutiny if its supervision and controls are found to be inadequate.

Careful drafting of AR arrangements

The decision reinforces the importance of precise drafting in ARAs. Principals seeking to limit their exposure should ensure that permitted activities are clearly defined, whether by reference to client categories, products, services or other relevant criteria, as they were in this case.

However, drafting alone is unlikely to be sufficient. Principals should ensure that they only authorise business that falls within the scope of their own regulatory permissions and that they are properly equipped to supervise.

Consumer redress and regulatory reform

The decision also exposes a potential gap in consumer protection where an AR acts outside the scope of its AR permission and neither the AR nor the principal represents a viable source of compensation.

In some cases, the Financial Services Compensation Scheme (“FSCS”) may provide compensation where an eligible claim exists, and the relevant firm is in default. For investment claims, compensation is capped at £85,000 per eligible person, per firm. This means that investors suffering losses in excess of that amount may still face a significant shortfall even where an FSCS claim is available. Whether compensation is available will depend on the nature of the claim and the scope of the scheme.

The decision also sits against the backdrop of ongoing regulatory reform aimed at strengthening consumer redress within the AR regime. In particular, HM Treasury has proposed extending the jurisdiction of the Financial Ombudsman Service (“FOS”) so that certain complaints may be brought directly against the AR where the principal is not responsible.

These developments form part of broader reform proposals relating to the AR regime, including a proposed regulatory gateway requiring firms to obtain FCA permission before acting as principals, the extension of the Senior Managers and Certification Regime to ARs, and the expansion of the FOS’s jurisdiction in certain circumstances. Collectively, the reforms are intended to strengthen FCA oversight of principal firms, increase accountability within ARs and enhance consumer protection, while preserving the flexibility of the regime.

Looking Ahead

The Supreme Court’s decision is best understood as a clarification of the statutory scheme rather than a departure from established authority. Consistent with Anderson v Sense Network Ltd – which confirmed that a principal’s responsibility under section 39 is limited to the business for which it has accepted responsibility – the decision confirms that section 39 responsibility is defined by the scope of responsibility assumed by the principal.

Ultimately, Kession provides a clear statement of where section 39 responsibility begins and ends. For principals and their advisers, the practical message is clear: AR arrangements must be carefully drafted, closely aligned with regulatory permissions and supported by robust, proactive supervision in practice. For consumers, however, recovery may be more limited where an AR acts outside its authority and lacks the resources to meet claims.