FCA: Managing Potential Risks from Inactive Appointed Representatives
Credit: Green World Group
With 34,000 ARs and a dedicated department in place, the FCA is using data to tackle the harm caused by dormant AR relationships and the supervisory temperature is rising.
Context:
The FCA maintains an ongoing programme of data-led supervision of the Appointed Representatives (AR) regime, with approximately 34,000 active ARs operating under around 2,400 authorised principal firms as of September 2025. Since the introduction of new rules in December 2022 (PS22/5 and PS22/11) requiring enhanced oversight, annual reviews, and REP025 data submissions, the FCA has used this data to focus supervisory attention on the highest-risk principal-AR relationships.
One specific risk that the FCA has repeatedly highlighted in its data publications and supervisory guidance is the problem of inactive or dormant ARs. Firms that are listed on the Financial Services Register as ARs but are generating no revenue from regulated activity and are not actively conducting the activities for which they were appointed. The FCA has found that some principals carry dormant ARs on their register without having adequate grounds for doing so, creating a risk that those ARs exploit the 'halo effect' of FCA register membership to promote unregulated activities or to facilitate financial crime.
HMT's February 2026 consultation on the AR regime reform (closing 9 April 2026) directly addresses this structural risk by proposing a new gateway requiring principal firms to obtain FCA permission before they can appoint ARs at all. The gateway proposal, combined with the FCA's ongoing data-led supervision and its established AR department, represents the most comprehensive overhaul of the AR regime since its inception in 1986.
Rules and Guidelines:
The FCA's supervisory expectations for managing inactive AR risks are grounded in PS22/5. Where an AR has not carried out regulated activity for some time, its principal must consider whether the AR relationship remains appropriate. If the AR appears to be conducting no regulated activity, the principal should consider terminating the relationship and submitting the appropriate notification to the FCA to update the Financial Services Register.
The FCA's REP025 data, submitted annually by all principal firms, includes revenue generated by each AR from both regulated and unregulated activities. The FCA uses this data to flag ARs generating no regulated revenue for targeted supervisory intervention. The annual review obligation (which requires principals to assess each AR's fitness and propriety, financial position, and business activities) must include specific consideration of whether ARs are actually conducting the regulated activities for which they were appointed.
For overseas appointed representatives (OARs), the FCA's June 2024 guidance confirmed that principals cannot adequately oversee an OAR that does not carry on regulated activity in the UK, and where this is the case, the FCA expects the principal to terminate the arrangement. Under HMT's proposed reform, the new principal gateway permission will include the FCA's power to restrict or condition a firm's ability to appoint ARs where it has demonstrated inadequate oversight of existing AR relationships.
Businesses Affected:
All authorised principal firms with current AR or IAR relationships, particularly those with large AR books in consumer finance, general insurance, and asset management, which are the highest-risk sectors identified by the FCA.
Firms with any ARs currently generating zero revenue from regulated activity, who are specifically in the FCA's supervisory crosshairs for dormant AR termination.
Compliance directors and MLRO teams must ensure that annual AR reviews include a specific assessment of regulated activity levels and that findings are documented.
Firms preparing to respond to the new principal gateway permission requirement under HMT's AR regime reform (the gateway is expected to require FCA authorisation before appointing any new ARs post-legislation).
Next Steps:
Run an immediate audit of your AR book against the FCA's REP025 data. Identify any ARs generating zero regulated revenue and initiate a review to determine whether the relationship should be continued or terminated.
Update annual AR review templates to specifically require assessment of whether the AR is actually conducting the regulated activities specified in its appointment agreement. Document the evidence base for every AR that is retained.
For overseas ARs: apply the FCA's June 2024 OAR guidance. If any OAR is not conducting regulated activity in the UK, the default assumption should be that the relationship should be terminated — document your rationale if you conclude otherwise.
Monitor HMT's AR regime reform implementation timeline. The gateway requirement will require operational changes before the first appointment of any new AR post-legislation.
Source | FCA | Inactive Appointed Representatives
