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Solicitor Gareth Fatchett looks at the Kession decision which he says could reshape risk across financial promotion and AR structures
The Supreme Court decision in Kession Capital v KVB Consultants may emerge as one of the most commercially significant developments for financial promotion firms and appointed representative (AR) structures in recent years.
Not because it fundamentally rewrites the law, but because it alters where firms now understand regulatory and commercial risk to sit.
For many years, large parts of the market operated on an implicit assumption: where regulated activity was introduced, distributed, or facilitated through an AR structure, liability would ultimately flow back to the principal firm.
That assumption created a degree of commercial comfort within the industry. If problems arose, there was usually a larger regulated entity standing behind the advice or promotion chain.
Kession challenges that assumption directly.
The judgment reinforces that liability under section 39 of the Financial Services and Markets Act 2000 is not unlimited. A principal firm is responsible only for the activities it has agreed to accept responsibility for.
While the legislation continues to provide an important consumer protection framework, the case makes clear that regulatory responsibility is ultimately determined by scope, permissions, and the precise structure of the relationship.
At first glance, this may appear to be a relatively narrow legal distinction. Commercially, however, the implications are far-reaching.
In practice, Kession pushes financial promotion activity away from being viewed solely as an advice and distribution exercise and towards something far closer to regulatory and legal structuring. The decision exposes a more fragmented risk landscape, particularly for firms operating within AR arrangements.
Activities carried out beyond the defined scope of a principal's permissions or oversight may no longer benefit from the protection many ARs previously assumed existed. In some circumstances, an AR operating outside that scope could lose the benefit of exemption entirely, potentially exposing itself to breaches of FSMA, uninsured liabilities, and direct exposure for those involved.
The decision also places renewed focus on professional indemnity insurance. Historically, many firms assumed professional indemnity insurance cover would respond where liability emerged. Increasingly, however, insurers are aligning cover closely to authorised permissions and clearly documented regulatory scope. Revenue generated outside that framework may fall outside cover altogether.
This issue becomes particularly acute in areas where the boundaries of regulated activity are often less defined, including off-platform arrangements, alternative investments, property-related opportunities, overseas introductions, and bespoke introducer structures. In those areas, Kession forces firms to confront a difficult but increasingly important question: who actually carries the regulatory risk?
Financial promotions
That question now sits at the centre of many financial promotion transactions.
For principal firms and networks, the judgment creates both opportunity and exposure. On one hand, firms now have greater ability to ringfence liability by carefully defining the activities, client categories, and jurisdictions for which they accept responsibility. Retail and professional client business can, in effect, be treated as distinct operational segments, allowing firms to structure AR relationships more defensively.
However, that protection is only effective if the underlying structure is robust.
Poorly drafted AR agreements, vague scope definitions, or operational practices that drift beyond documented permissions may significantly undermine that protection. Many firms may discover that the practical reality of how business has been conducted over time does not align perfectly with the legal framework intended to support it. Following Kession, that disconnect becomes materially more dangerous.
The implications are particularly significant in transactions involving financial promotion firms.
Acquisitions, introducer arrangements, and network exits are no longer simply commercial exercises. Increasingly, they are exercises in liability allocation and regulatory analysis. Buyers acquiring firms operating through AR structures must now assess not only revenue and client relationships, but also whether historic activity genuinely sat within regulatory scope, what liabilities may survive completion, and whether insurance would respond if claims emerge later.
Introducer relationships are attracting similar scrutiny. Arrangements that once appeared commercially straightforward now require far deeper analysis regarding ownership of the client relationship, allocation of regulatory responsibility, and whether introductions crossed into regulated activity.
Network migrations and exits create further complexity. Historic out-of-scope activity does not necessarily disappear simply because an AR moves between principals. Legacy liabilities may survive long after the relationship itself has ended, particularly where oversight arrangements were unclear or activities operated outside permission.
The result is that financial promotion transactions increasingly require what can best be described as regulatory engineering. Firms are no longer simply negotiating revenue share and valuation; they are structuring where liability, permissions, oversight, and commercial benefit sit within the advice chain.
As a consequence, practical governance has become more important than ever.
Firms should be auditing the precise scope of their permissions and reviewing whether operational activity genuinely aligns with documented regulatory cover. AR agreements should be stress-tested to ensure they are precise, enforceable, and operationally accurate. Equally, firms should examine how and where revenue is generated relative to the regulatory framework supporting it, particularly in higher-risk or non-standard arrangements.
Perhaps the most important shift arising from Kession is cultural rather than purely legal. The decision signals the gradual end of the long-standing assumption that there will always be a recoverable "deep pocket" somewhere within the structure. Liability now depends far more heavily on what was agreed, authorised, supervised, and documented from the outset.
In this environment, scope becomes critical.
Not all revenue now carries the same regulatory profile, and not all business models carry the same level of protection. For financial promotion firms operating through AR structures, the long-term success of a transaction may increasingly depend not simply on growth or distribution, but on whether liability, permissions, and revenue have been properly aligned from the beginning.
Gareth Fatchett is a solicitor at FS Legal Solicitors
