Supreme Court Rules On Principal Liability Under Financial Services And Markets Act 2000

The Supreme Court has held in Kession Capital Ltd (in liquidation) v KVB Consultants Ltd [2026] UKSC 11 that an authorised firm is not liable under section 39(3) of the Financial Services and Markets Act 2000 (FSMA) for the acts of its appointed representative where those acts fall outside the scope of the representative's appointment. 

Background

Kession Capital Ltd (KCL) was authorised to carry on designated investment business, and it entered into an appointed representative agreement ("ARA") with Jacob Hopkins McKenzie Ltd (JHM) to carry on "relevant business" (as defined). KCL was the principal and JHM the representative. They entered into the agreement under section 39.

JHM promoted and operated various property investment Schemes in which the claimants invested around £1.7 million. The Schemes failed, so the claimants tried to recover their lost money from KCL.

At first instance, summary judgment was awarded against Kession on the basis that it had assumed responsibility for JHM's activities under section 39 FSMA. The Court of Appeal upheld this decision by a majority, finding that the terms of the ARA did not limit Kession's liability for JHM's dealings with retail clients. Kession appealed.

The Supreme Court's decision

The Supreme Court unanimously allowed Kession's appeal. The Court held that dealing with retail clients constitutes a "part" of a business for the purposes of section 39(1) FSMA. Accordingly, by restricting JHM's permission to dealing only with professional clients, Kession accepted responsibility only for JHM's dealings with professional clients—not retail clients. The investors' claim therefore failed.

The distinction between retail and professional clients is an important element of the FCA's regulatory regime. This supports the view that dealing with retail clients may properly be described as a distinct "part" of a financial services business. The FCA itself may grant an authorised person permission to deal solely with professional clients, which also suggests that dealing with retail clients is a distinct "part" of a business. The Court highlighted the need for activities covered by the ARA to fall within the scope of the principal's permission.

The Court identified three reasons why consumer protection is better served by this interpretation:

• It would undermine effective regulation if an authorised firm whose own expertise lay in dealing with professional clients were nonetheless required to monitor and accept responsibility for its appointed representative's dealings with retail clients—particularly where the firm's own FCA authorisation did not permit it to deal with retail clients.
• An authorised firm may reasonably form the view that an appointed representative is qualified to deal with professional clients but not with retail clients. It makes little sense to require the firm to be responsible for dealings it has expressly prohibited.
• If dealing with retail clients is not a "part" of the permitted business, an appointed representative prohibited from dealing with retail clients would not incur a civil or criminal penalty for doing so regardless, a result that would not improve consumer protection.

Practical implications

This decision provides welcome clarity for authorised firms operating appointed representative arrangements:

• Scope of liability can be limited: Principal firms may limit their exposure under section 39(3) FSMA by restricting the scope of activities their appointed representatives are permitted to undertake. Where an ARA expressly prohibits dealings with retail clients, the principal will not be liable for any such dealings.
• Review existing ARAs: Firms should review their existing appointed representative agreements to ensure the scope of permitted activities is clearly defined and appropriately limited to reflect the firm's risk appetite and supervisory capabilities.
• Ongoing supervision remains important: Whilst this decision limits liability, it does not remove the FCA's expectation that principal firms appropriately supervise their appointed representatives. Firms should maintain robust oversight processes to detect and prevent unauthorised activities.