The appeal concerned the extent of an authorised person’s responsibility for the activities of its Appointed Representative (“AR”) under S39 FSMA. The Supreme Court ruled unanimously that Kession was not liable under S39 FSMA for advice that had been given by its AR to retail clients in circumstances where Kession itself did not have permission to advise retail clients and had expressly prohibited its AR from giving advice to retail clients.
The judgment has wide-ranging ramifications for the financial services sector. It reaffirms the distinctions that should be drawn between protections for retail clients and those for professional clients. The judgment also has implications for an industry still embedding the Consumer Duty and considering how the interpretation of legislation should be approached through the lens of consumer protection.
Kession Capital Ltd (in Liquidation) (Appellant) v KVB Consultants Ltd and others (Respondents) [2026] UKSC 11
The appellant, Kession Capital Ltd (“Kession”), was an authorised person with permission under Part 4A FSMA to arrange deals in investments and advise on investments. Kession’s permission to advise on investments was subject to the limitation that Kession could not deal with retail clients.
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’ on behalf of Kession. “Relevant Business” included arranging deals in investments and giving advice on investments. The terms of the ARA made clear that JHM was not permitted to conduct any business with retail clients.
The Appointed Representative regime provides that a person authorised by the FCA to carry on a regulated activity may appoint a person under a written contract to carry on a regulated activity on their behalf. By S39(3) FSMA, the Principal of an AR is responsible, to the same extent as if it had expressly permitted it, for anything done or omitted by the AR in carrying on “the business for which the authorised Person has accepted responsibility”.
Following its appointment under the ARA, JHM promoted property investment schemes to a number of retail investors. The schemes failed and the investors lost their combined investments of £1.7 million. In October 2021, the investors issued proceedings against Kession and made an application for summary judgment.
In the judgment at first instance in the London Circuit Commercial Court (KBD), Paul Stanley KC awarded summary judgment in favour of the investors on the basis that Kession was responsible for JHM’s activity in arranging and advising on investments, notwithstanding the limitations on Kession’s own permission and the terms of the ARA, which clearly prohibited JHM from dealing with retail clients.
In a 2-1 judgment, the Court of Appeal upheld that first instance decision. Citing the decision in Anderson v Sense Network Ltd [2019] EWCA Civ 1395, Males LJ, with whom Sir Geoffrey Vos MR agreed, held that the real question was whether the limitation on the scope of the permission given to the AR was a restriction on how a permitted activity could be carried out, rather than an effective limitation as to what activity could be carried on. Males LJ held that that it was “not a sensible reading” of that phrase to divide the business into two parts, one consisting of advising and arranging deals for retail clients and the other consisting of doing so for other types of customers.
The Supreme Court unanimously allowed Kession’s appeal. In the judgment delivered by Lord Richards he observed that Section 39(1) contains three critical steps. First, there must be a contract whereby the authorised person requires or permits the AR to carry on business of a prescribed description. Second, the authorised person must accept responsibility in writing for the appointed person’s activities in carrying on the whole or part of that business. The words “the whole or part of that business” in S39(3) demonstrate that the acceptance of responsibility need not relate to all activity that could fall within a generic type of regulated business. Third, if those first two steps are satisfied, the appointed person will be exempt from the general prohibition in S19 FSMA as regards the business or that part of it for which the authorised person has accepted responsibility. The extent of the AR’s exemption under section 39(1), and the authorised person’s responsibility under section 39(3), are coterminous.
Lord Richards observed that the principal purpose of the regulatory regime for financial services is to provide protection for users of financial services. It is therefore no surprise that distinctions are drawn between retail clients and professional clients, who can be expected to be more sophisticated and better able to make decisions as to what is in their own best interests. While professional clients are entitled to protection against incompetent or unscrupulous providers and entitled to expect that providers will adhere to proper standards, they do not need the same level of protection as retail clients. The regulatory burden on firms which choose to deal with retail clients is therefore greater than on other firms. Firms will be held to higher standards of conduct in their dealings with retail clients and are required to ensure that employees who deal with retail clients meet specific training and competence standards.
Lord Richards concluded that dealing with a particular class or category of clients, such as retail clients, should be regarded as “part” of the business of a financial services provider. He observed that the construction of the provisions of FSMA must be undertaken with the purpose of client protection firmly in mind, but remembering also Lord Sumption’s cautionary words in Financial Conduct Authority (formerly Financial Services Authority) v Asset LI Inc (trading as Asset Land Investment Inc) that regulatory legislation is a compromise between the protection of consumers and the avoidance of “regulatory overkill”. The different treatment of retail and professional clients in the regulation of financial services forms a very important element of the regime, on account of their significantly different needs. Lord Richards also noted that the FCA is permitted to restrict a Part 4A permission to dealing with professional clients only. If the FCA is entitled to impose such a restriction on an authorised person, it must follow that “part” of a business can be identified on the same basis for the purposes of section 39.
Lord Richards also held that whilst it is important that remedies are available when things go wrong, the Court of Appeal was wrong when it held that that the point of S39(3) is to ensure a ‘safeguard’ for clients who deal with Appointed Representatives. S39(3) is intended to confer exempt status on persons in a manner which will fulfil the underlying regulatory and protective purposes of the legislation. It is important that remedies are available when things go wrong, but to be effective a regime such as that under FSMA is focused on the prevention of abuse, rather than providing safeguards.
Lord Richards also noted that the purposes of consumer protection were well served by construing “part” of the business as including dealing with retail clients. It would defeat the regulatory purpose of the Appointed Representative regime and be contrary to the interests of consumers if an authorised person, whose experience and expertise lay in dealing with professional clients, was required to assume responsibility for an Appointed Representative’s conduct of retail business. It is fundamental to any system of regulation that the authorised person should have the experience and expertise appropriate to the permitted business. An authorised person must be in a position to monitor the business they have permitted the AR to carry out and to ensure compliance with regulatory requirements.
The contrary argument, that dealing with retail clients is not a “part” of the permitted business, would lead to what Lord Richard described as the “startling proposition” that an authorised person could be responsible for an Appointed Representative’s conduct in dealing with retail clients, even though its own Part 4A permission excluded dealing with retail clients. This would make little sense, and would make it impossible to ensure adequate arrangements for training and competence. Finally, unless “part” of the business is construed as including dealing with retail clients, an AR which deals with retail clients when it has been specifically prohibited from doing so would face no criminal or civil consequences. That outcome would not improve consumer protection.
Although the appeal arose from an application by the Claimants for summary judgment, in 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.
End Note
This judgment provides important A welcome clarification for authorised FIRMS, confirming that a permission to advise retail clients will constitute “part” of a business and, critically, that that it would be “regulatory overkill”, and unfair, to make an authorised person responsible for an Appointed Representative’s activities in dealing with retail clients when it is expressly prohibited from doing so by the terms of its appointment.
