The UK Supreme Court has sharply limited when financial firms are liable for appointed representatives, ruling in Kession Capital Ltd v KVB Consultants Ltd that liability under section 39 of the Financial Services and Markets Act 2000 depends strictly on the scope of permission granted.
In a unanimous decision on 1 April 2026, the court held that firms are not liable for activities falling outside that scope—including dealings with retail clients where those activities were expressly prohibited.
The ruling overturns the Court of Appeal and clarifies the boundaries of liability in the UK’s appointed representative regime.
For regulated firms, the implication is immediate: liability is not assumed, but defined by the scope of authorised business.
The Dispute and Its Commercial Significance
For years, section 39 has been treated in practice as creating a form of “backstop” liability—ensuring investors could recover from authorised firms when appointed representatives failed.
This case arose directly from that assumption.
Kession Capital Ltd (“Kession”), an FCA-authorised firm, had entered into an appointed representative agreement (“ARA”) with Jacob Hopkins McKenzie Ltd (“JHM”), allowing it to carry on certain regulated investment activities on its behalf.
The agreement, however, drew a clear boundary: JHM was permitted to deal only with professional clients and eligible counterparties, and was expressly prohibited from conducting business with retail clients.
Despite that restriction, JHM promoted and operated property investment schemes which attracted approximately £1.7 million from investors. Most of those investors were, in substance, retail clients. When the schemes failed, the losses were total.
With JHM insolvent, investors turned to Kession, arguing that section 39 of the Financial Services and Markets Act 2000 made the authorised firm responsible for the conduct of its appointed representative.
At first instance, that argument succeeded on the section 39 issue. The High Court granted summary judgment against Kession on that basis, and the Court of Appeal upheld the decision by a majority, holding that restrictions on dealing with retail clients did not limit Kession’s liability.
The Supreme Court was therefore asked to decide a narrower but critical question: whether liability under section 39 extends to activities that fall outside the defined scope of the appointed representative’s permission.
The Court’s answer reshapes the assumption that section 39 provides a universal safety net.
Liability is not automatic, even where misconduct occurs within a regulated activity, but depends on whether the conduct falls within the specific part of the business for which responsibility was accepted.
Decision and Reasoning
The Supreme Court allowed the appeal, holding that dealing with retail clients constitutes a distinct “part” of a financial services business under section 39.
Kession had expressly limited JHM’s permission to dealing only with professional clients. As a result, it accepted responsibility only for that part of the business, and not for JHM’s dealings with retail clients. The investors’ section 39 claim against Kession therefore failed.
In reaching that conclusion, the Court, in a judgment delivered by Lord Richards, focused on the meaning of the phrase “part of that business” within section 39 and how it operates within the wider regulatory framework.
As a matter of ordinary language, the Court found no difficulty in treating dealings with different categories of client as distinct parts of a business. A firm that serves both retail and professional clients can readily be understood as carrying on separate components of its overall activity.
That interpretation was reinforced by the structure of the FCA’s regulatory regime.
The distinction between retail and professional clients is fundamental: retail clients receive a higher level of protection, and firms dealing with them are subject to more extensive compliance obligations.
This supports the view that client category defines the scope of the business itself, rather than merely the way in which it is conducted.
The Court therefore rejected the approach taken by the lower courts that client classification concerns only how business is carried on. Instead, it held that client type determines what business is being carried on.
That distinction is critical, because only the “what” can define the boundary of responsibility under section 39.
The Court also emphasised the need for regulatory coherence. It would be inconsistent to require an authorised firm to accept responsibility for activities—such as dealing with retail clients—for which it may lack authorisation, expertise, or the systems necessary to supervise effectively.
Finally, the court rejected an interpretation that would impose broad, catch-all liability on authorised firms.
While investor protection is a central objective of the statutory regime, it does not justify extending responsibility beyond the scope of the business for which permission has been granted.
The result is a clear and commercially significant rule: liability under section 39 is co-extensive with the scope of permission.
An authorised firm is responsible only for those activities its appointed representative is permitted to carry on, and not for activities outside that defined boundary.
The judgment was unanimous, with Lord Lloyd-Jones, Lord Sales, Lady Rose, and Lady Simler agreeing with Lord Richards’ reasoning.
Key Takeaways for Business
- Liability can now be ringfenced by client type
Firms can limit exposure by restricting appointed representatives to professional clients, reducing the risk of retail investor claims. - Scope of permission is now the liability boundary
Responsibility under section 39 applies only to the defined “part” of the business, not all regulated activity carried out in practice. - Misconduct outside mandate may leave investors without recourse
Where an appointed representative acts beyond its permitted scope, claimants may have no viable claim against the authorised firm. - Drafting of appointed representative agreements is now critical
The definition of permitted business will directly determine exposure in any future litigation. - Supervision risk remains within scope
Firms must still actively monitor activities they have authorised—liability is reduced, not removed.
Outcome and Implications
The Supreme Court’s ruling conclusively resolves the section 39 liability issue. The Court held that Kession had no responsibility under section 39(3) for JHM’s dealings with retail clients, and no further proceedings on that liability issue are indicated in the judgment.
Case Details
- Court: UK Supreme Court
- Date: 1 April 2026
- Case name: Kession Capital Ltd (in Liquidation) v KVB Consultants Ltd and others
- Docket number: UKSC/2024/0114
- Area of law: Financial services regulation / commercial litigation
- Result: Appeal allowed; authorised firm not liable for appointed representative’s dealings with retail clients
People Also Ask
What is an appointed representative under FSMA?
An appointed representative is a firm or individual permitted to carry out regulated activities on behalf of an authorised firm. The authorised firm accepts responsibility for defined parts of that activity.
Are firms liable for appointed representatives in the UK?
Firms may be liable, but only for activities within the scope of permission granted under section 39 FSMA. This case confirms that liability does not extend beyond that scope.
What does section 39 of FSMA do?
Section 39 allows authorised firms to appoint representatives to carry on regulated activities, while assigning responsibility for specified parts of that business.
What is the difference between retail and professional clients?
Retail clients receive higher regulatory protection, while professional clients are considered more sophisticated and subject to fewer safeguards.
Why is this ruling important for financial services firms?
It clarifies how liability is allocated in appointed representative structures, allowing firms to define and limit exposure through carefully drafted agreements.