The Private Capital Series | Marshall Sterling Investment Management Resources

Module 10.10 · Appointed Representatives and Regulatory Hosting

The articles in this module so far have focused on what founders and SME owners can do within the financial promotion regime without FCA authorisation. This article addresses a different question: when does the activity you are undertaking require a regulated wrapper, and what does that mean in practice?

The appointed representative regime and regulatory hosting are solutions to a specific problem: you need to carry out regulated activity or communicate financial promotions in circumstances where the available exemptions do not cover what you want to do, but full FCA authorisation is disproportionate to your needs or timeline.

The Distinction Between Financial Promotions and Regulated Activity

Before addressing appointed representatives and hosting, it is worth being precise about the distinction between two separate regulatory frameworks that are sometimes conflated.

The financial promotion regime under section 21 of FSMA governs communications. It controls what you can say to whom about investments. The regulated activity regime under section 19 of FSMA governs doing. It controls what activities you can carry out in relation to investments, including arranging deals, managing investments, advising on investments, and operating collective investment schemes.

When Regulated Activity Becomes Relevant

For a founder raising capital for their own business, the regulated activity question is generally straightforward. Issuing shares in your own company is not, in itself, a regulated activity. The financial promotion restriction governs how you communicate about that issuance, but the act of issuing shares does not require FCA authorisation.

The regulated activity framework becomes relevant when you move beyond raising capital for your own business into activities that involve facilitating or arranging investment for others. Examples include:

• Dealing in investments as agent, including buying, selling, subscribing for, or underwriting investments on behalf of others
• Making arrangements with a view to transactions in investments, which is broader than arranging deals and can capture platforms, matching services, and syndication structures
• Arranging deals in investments, including introducing investors to businesses seeking equity fundraising capital on a commercial basis or operating a platform that facilitates investment transactions
• Advising individuals on whether to make specific investments, including personal recommendations about whether to participate in a particular funding round
• Managing investments on a discretionary basis on behalf of others, whether through a fund structure or otherwise. Where the scale or nature of this activity exceeds what an appointed representative arrangement can cover, direct FCA authorisation is required
• Operating a collective investment scheme, where investor funds are pooled and returns depend on the collective performance of the pool
• Carrying on any of the above activities at a scale or in a manner that exceeds what an appointed representative arrangement can cover, in which case direct FCA authorisation is required

What is an Appointed Representative

An appointed representative is a firm or individual that carries out regulated activities under the umbrella of an FCA-authorised firm, known as the principal. The appointed representative itself is not directly authorised by the FCA. Instead, it operates under the authorisation of its principal, which takes regulatory responsibility for the appointed representative’s conduct.

The appointed representative regime is set out in section 39 of FSMA and in the FCA’s Supervision sourcebook. To become an appointed representative, a business enters into a written contract with an authorised principal that specifies the regulated activities the appointed representative is permitted to carry out. The principal must register the appointed representative with the FCA, and the appointed representative appears on the FCA register as an appointed representative of that principal.

Regulatory Hosting

Regulatory hosting is a commercial arrangement in which an FCA-authorised firm acts as principal to a business that wants to carry out regulated activities under its umbrella. It is, in substance, the appointed representative regime operated as a commercial service.

Regulatory hosting firms provide their authorisation infrastructure to businesses that need a regulated wrapper for their activities without wanting to seek their own FCA authorisation. In return, the hosting firm charges a fee, takes a percentage of revenue, or both. It also takes on regulatory responsibility for the hosted business’s conduct, which means it will impose its own compliance requirements, carry out due diligence on the business and its principals, and monitor activity on an ongoing basis.

When Appointed Representative Status or Hosting Makes Sense

If you are raising capital solely for your own business and relying on the FPO exemptions to communicate with investors, you do not need an appointed representative arrangement or a regulatory host. The arrangement becomes relevant in the following circumstances:

• You want to communicate financial promotions that do not fall within any FPO exemption and need an authorised firm to approve them.
• You want to operate a platform, network, or introduction service that connects investors with investment opportunities, where the activity is likely to constitute arranging deals in investments.
• You are building a business in the broader investment ecosystem and want to begin operating while your own FCA authorisation application is pending.
• You are advising businesses on capital raising in a way that involves specific recommendations about investment structures or investors.

What Hosting Does Not Provide

Regulatory hosting is not a mechanism for carrying out activities that would not otherwise be permissible. A hosted business can only carry out the regulated activities covered by the principal’s permissions and specified in the hosting contract. If those activities would cause consumer harm, involve misleading communications, or breach the FCA’s conduct standards, the hosting arrangement does not make them acceptable.

Hosting also does not remove your personal obligations as a manager or director of the hosted business. The costs and obligations of a hosting arrangement are also material. A reputable hosting firm will carry out thorough due diligence before taking on a new appointed representative, impose compliance requirements, require regular reporting, and maintain oversight of your activities. Hosting arrangements are not a light-touch solution.

Choosing a Principal or Host

If you conclude that an appointed representative arrangement or regulatory hosting is the right structure for your activities, the choice of principal or host is important. Key questions to address when evaluating a potential principal or host include:

• Whether they hold the permissions needed to cover the activities you want to carry out
• What their compliance infrastructure looks like and how they monitor appointed representatives
• What due diligence they carry out on new appointed representatives and their principals
• What the commercial terms are including fees, revenue share, and notice periods

Direct Authorisation: When It Becomes the Right Answer

Appointed representative status and regulatory hosting are appropriate solutions in specific circumstances but they are not substitutes for direct FCA authorisation where that is genuinely required.

If your business model involves regulated activity on a sustained and material basis, if the activities you want to carry out exceed what an appointed representative arrangement can cover, or if operating under another firm’s umbrella creates conflicts or constraints that affect your business, direct authorisation is the right answer. The application process requires detailed documentation of your business model, governance structure, financial resources, systems and controls, and the fitness and propriety of your senior managers — including a regulatory business plan setting out your proposed activities, target market, and compliance arrangements. The FCA’s assessment typically takes between six and twelve months from submission of a complete application. Marshall Sterling Investment Management provides regulatory business plan drafting support for firms preparing FCA authorisation applications.