Commercial reality means that, no matter how strong a claim, the claimant is not well advised to pursue it if there is no means of recovering their loss, or more basic still, recouping their costs. As a result, where a potential defendant is impecunious, the claimant may seek to cast their net a bit wider. When it comes to losses a claimant incurs as a result of following improper financial advice, the claimant may look not only to their financial advisor (the “appointed representative”), but also the person who was supposed to supervise them (the “authorised person”). In Kession Capital Ltd (in Liquidation) v KVB Consultants Ltd and others [2026] UKSC 11, the Supreme Court (overturning the decisions of the Court of Appeal and High Court) held that an authorised person can limit their liability for dealings between appointed person and retail clients.
Relevant legal provisions
The Financial Services and Markets Act 2000 (“FSMA”), s.19, prohibits a person from conducting a regulated activity in the United Kingdom, such as arranging deals in investments and advising on investments, unless that person is either “authorised” or “exempt”. This is called “the general prohibition”.
Authorised persons are authorised to carry on regulated activities by the Financial Conduct Authority (FCA). The FCA may limit the authorisation it grants, restricting the authorised person to dealing only with certain categories of clients and excluding others, such as retail clients.
One way that a person may be considered “exempt” from the general prohibition is if they are an appointed representative of an authorised person. Section 39(1) provides that, for such an exemption to be effective, the appointed representative: (a) must enter into a contract with the authorised person which “permits or requires him to carry on business of a prescribed description”, and “complies with such requirements as may be prescribed”; and (b) is someone “for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing”.
FSMA, s.39(3), provides for the authorised person to be responsible for the activities of the appointed person within the permission granted pursuant to section 39(1).
Summary of the facts
Kession Capital Ltd, an authorised person, entered into an Appointed Representative Agreement (“ARA”) with Jacob Hopkins McKenzie Ltd (“JHM”). Kession’s own authorisation had been limited by the FCA such that it could not deal with retail clients and, in the ARA, JHM agreed that it would not advise or conduct business on behalf of retail clients.
JHM promoted property investment schemes to individuals who claimed that they should at all times have been identified as retail clients. These schemes failed. The investors issued proceedings against JHM and its controlling director and shareholder, the individual scheme companies, a legal practice and Kession. Due to insolvency, no recovery was expected from JHM, its controlling director and shareholder, or the scheme companies. Kession argued, amongst other things, that it should not be held liable for conduct that fell outside the ARA.
Judgment
Lord Richards, with whom Lord Lloyd-Jones, Lord Sales, Lady Rose and Lady Simler agreed, held that Kession had no responsibility under section 39(3) for anything done or omitted by JHM in carrying on business with retail clients. Lord Richards arrived at this conclusion in the following way:
- The status of an appointed representative is dependent on their contract with an authorised person complying with section 39(1) FSMA. In particular that the authorised person has accepted responsibility for the “whole or part” of the appointed representative’s prescribed business.
- The relevant issue was therefore whether dealing with retail clients is, for the purposes of s.39, a “part” of the business of a prescribed description.
- The regulatory regime supported reading s.39 in this way, as: (a) it differentiated between the treatment of retail and professional clients, providing the former with increased protection; and (b) the FCA is able to place limitations on authorised persons requiring them to deal with professional clients only.
- Such a conclusion would not undermine consumer protection as: (a) a contrary reading of s.39 would mean that an authorised person would have to accept responsibility for advice the appointed representative gave to retail clients, notwithstanding that the authorised person’s authorisation would be limited to professional clients and their experience and expertise would be geared towards supervising dealings with this category of clients; (b) the authorised person could rightly take the view that the appointed representative was competent only to deal with professional clients, and therefore it would make little sense for them to be required to accept responsibility for the appointed representative’s dealings with retail clients as well; and (c) unless “part” of the business is construed as including dealing with retail clients, an appointed representative which is specifically prohibited by its contract with the authorised person from dealing with retail clients will nonetheless be exempt from the general prohibition if it does deal with retail clients.
- Lord Richards referred to his decision in Anderson v Sense Network Ltd [2019] EWCA Civ 1395, in which he differentiated between what business was carried on by the appointed representative (liability for which could be excluded by the authorised person) and how it was carried on (where liability could not be so excluded). Lord Richards considered that dealing with professional or retail clients related to what business, or the scope of the business, that could be carried on by the appointed representative.
Practical consequences
The practical significance of the judgment lies in the distinction between defining the scope of the appointed representative’s permitted business and attempting to exclude responsibility for the manner in which that business is conducted. A contractual limitation identifying the category of clients with whom the appointed representative may deal may define a “part” of the relevant business for the purposes of s.39 FSMA. By contrast, a term requiring the appointed representative to comply with regulatory standards, or to recommend only suitable investments, will not enable the authorised person to avoid responsibility for failures in the conduct of business that it has in fact authorised.
The decision is therefore important not only for investor claims, but also for authorised firms structuring appointed representative arrangements, as it confirms that carefully drawn scope limitations can affect both the representative’s exemption and the authorised person’s statutory responsibility.
