Case Update: Kession Capital Ltd (in Liquidation) v KVB Consultants Ltd and others [2026] UKSC 11

Key Takeaway

The UK Supreme Court ("UKSC") handed down judgment on 1 April 2026 unanimously allowing the appeal of an FCA authorised firm, concluding that an authorised person's responsibility for its Appointed Representative under section 39(3) of the Financial Services and Markets Act 2000 ("FSMA") may be validly limited within an Appointed Representative Agreement to a "part" of the relevant business. The UKSC found that the authorised firm was not liable for the actions of its Appointed Representative in circumstances where the Appointed Representative had acted outside of the scope of the Appointed Representative Agreement in dealing with retail clients. 

Background

The appeal concerned the extent of an authorised person's responsibility for the activities of its Appointed Representative under section 39 of FSMA. Under section 39(1), a person who is not itself authorised by the FCA may be appointed by an authorised person to carry on regulated activities, provided the authorised person accepts responsibility in writing for the representative's activities in carrying on "the whole or part of" the relevant business. Under section 39(3), the authorised person is then responsible for anything done or omitted by the Appointed Representative in carrying on the business for which it has accepted responsibility.

The appellant, Kession Capital Ltd ("Kession"), was an FCA-authorised firm with permission to carry on regulated activities including arranging deals in investments and advising on investments under Part 4A of FSMA. However, Kession's Part 4A permission was itself subject to a limitation, which excluded dealing with retails clients, restricting it to professional clients and eligible counterparties only.

By an Appointed Representative Agreement ("ARA") dated 30 June 2015, Kession appointed Jacob Hopkins McKenzie Ltd ("JHM") as its Appointed Representative to carry on "Relevant Business", which was defined to include arranging deals in investment and advising on investment, subject to the limitations of Kession's own Part 4A permission. The ARA expressly prohibited JHM from conducting any business with retail clients, restricting it to professional clients and eligible counterparties. Schedule 5 of the ARA also listed the regulated activities and confirmed that the customers with which Kession was permitted to deal were limited to eligible counterparties and professional clients, thereby excluding retail clients.

JHM promoted investment in property development schemes, classifying all investors as professional clients. All seven relevant schemes failed, with investors losing a combined total of £1.7 million. The investors issued proceedings, including against Kession, and all except one asserted that they were retail clients who had been misclassified.

Procedural History

At first instance, Paul Stanley KC, sitting as a Deputy High Court Judge, granted summary judgment against Kession on the basis that it was responsible under section 39(3) for JHM's activities in dealing with retail clients, notwithstanding the limitations in both Kession's Part 4A permission and the ARA.

The Court of Appeal affirmed this decision by a majority. Males LJ, giving the lead judgment (with which Sir Geoffrey Vos MR agreed), held that the "description" of the business in section 39(1)(a) referred to the regulated activity in question (i.e. "advising on investments" and "arranging deals in investments") and was not defined by reference to the classification of clients. He considered that limiting responsibility of the authorised principal to professional clients would be contrary to the purpose of investor protection. Lewison LJ dissented.

The Appeal

The central question was the proper construction of section 39 of FSMA, and specifically whether an authorised person's responsibility under section 39(3) for its Appointed Representative's activities could be limited by terms of the ARA so as to exclude dealings with retail clients. This turned on the meaning of the words "the whole or part of that business" in section 39(1)(b), and whether dealing with retail clients constituted a "part" of the business of a prescribed description, such as advising on investments or arranging deals in investments.

The Supreme Court's Decision

The Supreme Court unanimously allowed the appeal, with Lord Richards delivering the sole substantive judgment (Lord Lloyd-Jones, Lord Sales, Lady Rose, and Lady Simler agreeing).

Lord Richards held that dealing with retail clients is, as a matter of ordinary language, capable of being described as a "part" of a financial services business, noting that the distinction between retail and wholesale customers is centuries old. The different treatment of retail and professional clients forms a very important element of the FSMA regulatory regime, and the FCA may itself restrict a Part 4A permission to dealing with professional clients only — both of which support the view that dealing with a particular class of clients constitutes a "part" of the business for the purposes of section 39.

Lord Richards expressed three grounds for this construction. First, the purpose of the Appointed Representative regime is to enable regulated business to be carried on under the supervision of an authorised person with the appropriate experience and expertise; it would defeat this purpose if an authorised person experienced only in dealing with professional clients were forced to assume responsibility for retail business it lacked the competence to supervise. Second, an authorised person may legitimately consider that an Appointed Representative is qualified to deal with professional clients but not with retail clients, and it would make little sense to require the authorised person to be responsible for retail dealings in those circumstances. Third, unless "part" of the business includes dealing with retail clients, an Appointed Representative expressly prohibited from dealing with retail clients would nonetheless be exempt from the general prohibition if it did so, committing no criminal offence and suffering no civil consequences — creating a "promiscuously broad exemption" contrary to investor protection.

Lord Richards rejected each of the three reasons given by Males LJ in the Court of Appeal. On Males LJ's first point — that the type of business is distinct from the clients for whom it is undertaken — Lord Richards held that it did not follow that dealing with retail or professional clients could not form different parts of that business. On Males LJ's second point — that client classification involves an assessment akin to a suitability assessment — Lord Richards disagreed, observing that client categorisation often involves no assessment at all and is not comparable to a holistic suitability evaluation. On Males LJ's third point — that limiting responsibility to professional clients would leave retail clients without a remedy — Lord Richards held that this misunderstood section 39's primary mechanism for investor protection, which operates not by providing remedies but by ensuring that only competent persons are permitted to deal with retail clients under appropriate supervision.

Lord Richards endorsed Lord Sumption's cautionary observation in FCA v Asset LI Inc that "… most regulatory legislation is a compromise between the protection of consumers and the avoidance of regulatory overkill." He observed that imposing responsibility on an authorised person for its Appointed Representative's retail dealings, in the face of an express prohibition, would involve an element of regulatory overkill and unfairness, and would likely discourage the appointment of Appointed Representatives.

Practical Implications

This UKSC judgment provides important clarification for authorised persons operating within the Appointed Representative regime ("AR Regime"). According to the FCA, in 2023 there were 2,900 principals with approximately 35,000 Authorised Representatives. The use of the AR Regime is an integral part of the financial services sector.

The judgment now gives authorised persons more certainty as how they may limit the scope of the Appointed Representative's permission — and their own corresponding responsibility under section 39(3). Where an Appointed Representative Agreement expressly excludes a particular type of business, the authorised person will not be responsible under section 39(3) for the Representative's dealings in relation to that business, even where the Representative acts in breach of that restriction. It must be noted that the UKSC decision focused on the construction of s.39 in light of a particular agreement, therefore it remains to be seen what else can be considered by the Court as being part of the business and whether there is a threshold.

However, it is important to note the corollary identified by the Court: an Appointed Representative that deals in breach of such a restriction will not benefit from the exemption under section 39(1) and will therefore be subject to the criminal and civil consequences of breaching the general prohibition under sections 23 and 26 of FSMA. The authorised person (and their legal representatives) should ensure that Appointed Representative Agreements clearly delineate the scope of the permitted business, including any client category restrictions, and that robust monitoring arrangements are in place to enforce compliance.

The Judgment comes with the backdrop of a HM Treasury consultation, which has recently closed, in connection with the Government's policy statement published in August last year setting out proposals intended to increase confidence in the use of Appointed Representatives. It was said within that consultation that the Government views the Appointed Representatives regime as playing an important part in the provision of financial services, delivering a range of benefits to businesses and consumers. The regime provides a proportionate and cost-effective way for firms to engage in regulated activity without being authorised, allowing a broader range of providers to enter the marketplace. In doing so, the regime promotes competition, supports innovation and contributes to economic growth. It is said that the Government therefore intends to adapt the legislative framework to provide a proportionate level of protection for investors, while ensuring that the current broad scope of the regime is preserved, enabling the financial services sector, and the UK economy as a whole, to continue benefitting from the regime. The proposals include authorised firms wishing to use Appointed Representatives first needing to obtain permission from the FCA as well as the Financial Ombudsman Service applying to the regime.