An appointed representative tells its network principal, soon after onboarding, that it does not intend to carry out any regulated activity. The principal keeps the AR on the Financial Services Register for over a year, waiting for the contractual end date to roll around before terminating. The FCA has just confirmed, in print, that this is poor practice. It is also far more common than most networks would care to admit.
That example sits inside a “good and poor practice” publication the FCA released on 21 April 2026, looking at how principal firms manage appointed representatives that are not generating any regulated revenue. The headline finding is uncomfortable. Of fourteen principal firms reviewed, seven had to make changes following FCA engagement. Eleven AR relationships were terminated outright. That sample wasn’t picked at random. The FCA had questions about each of those firms, and roughly half of those questions led to action.
The temptation, if you run a mortgage network, is to read this as another piece of background regulatory noise. It is not. Read alongside the Treasury’s consultation that closed on 9 April, which proposes that principal firms should need explicit FCA permission before they can take on ARs at all, and the picture changes. This isn’t a one-off prod. The regulator is preparing the ground for a much harder set of rules.
So why does the FCA care so much about a broker who is not writing any business?
The honest answer is that the inactive AR is often the warning sign of the next problem, not the absence of one. In the FCA’s own words, an unexplained lack of regulated activity points to weaknesses in governance, monitoring and risk management. A broker who has gone quiet on the principal’s permissions has usually gone somewhere. Sometimes that somewhere is a different revenue stream the principal does not see. Sometimes it is a parallel operation the AR has built outside the regulated perimeter, trading on the credibility of the FCA badge. Sometimes the AR’s website is still describing itself as “FCA authorised”, a phrase the FCA has just gone out of its way to call out as inaccurate. Appointed representatives are not authorised by the FCA. They operate under a principal that is. The distinction matters because consumers cannot reliably make it.
This is what the FCA calls the halo effect, and it is one of the harder things for a network to manage. The AR is on the public register, which any consumer can search. The principal has done its onboarding due diligence. The compliance team has signed off on the materials. And then nothing happens for a year, while the AR carries on doing whatever it is they are doing, branded with the principal’s name and the protection it implies. The principal carries the regulatory risk for activity it is not even seeing.
There is a commercial tension built into all of this. Network principals make money when they have more appointed representatives on the book, not fewer. AR fees are recurring revenue. Onboarding is expensive, terminating relationships is awkward, and an AR that is paying its membership fee but not producing business is, from a pure accounting view, a low-effort customer. The FCA is now actively working against that incentive. It expects principals to identify inactive ARs quickly, engage to understand why, and reassess the relationship without delay. The publication makes the point explicitly that suspension should not be used as an indefinite alternative to making a decision.
The other thing the FCA flagged, which has been a quiet problem in the industry for years, is the accuracy of REP025 returns. Networks routinely misclassify income. Referral fees, protection commission, second charge brokerage, all of it gets booked in ways that make active ARs look dormant, or vice versa. The regulator is now telling principals it expects clear and accurate explanations of zero-activity reporting. If a network has been treating REP025 as a tick-box submission, it has a problem.
Combine this with the Treasury proposals and the direction of travel becomes hard to ignore. If the consultation is taken forward, principal firms will need explicit FCA permission to act as principals at all. ARs will face direct complaints to the Financial Ombudsman in cases where the principal is not responsible. The Senior Managers and Certification Regime would extend to AR firms in line with how it already applies to authorised firms. None of that is in force yet. All of it is the direction of travel.
What the FCA is telling network principals, in plain terms, is that an AR roster has to be treated as a regulatory perimeter rather than a customer list. The principal is accountable for everything that happens inside it. Quiet brokers on the network’s permissions are open questions the principal needs to be able to answer, and the FCA has made clear that it expects those answers to be ready before they are asked.
For most networks, that means a piece of work that nobody particularly wants to do. The work is straightforward in principle. It involves auditing the AR base, identifying the firms that have reported nothing meaningful through REP025 for an extended period, engaging with them properly, documenting those conversations, and checking that the AR agreements still meet the requirements of section 39 FSMA and SUP 12.5 rather than reflecting the language of an older regime. The straightforward bit ends there. The genuinely difficult part is being prepared to act when the answer comes back uncomfortable.
The principal firms that emerge from the next eighteen months in good shape will be the ones who treat their AR books less like a membership club and more like a portfolio they are accountable for. The ones who do not will find that the regulator’s questions arrive whether they have answered them in advance or not.
The FCA’s publication is here: Managing potential risks of inactive appointed representatives