We have adopted a specialist team approach to our practices for many years. We feel that this is the way our clients want us to work, and that specialisation leads to the provision of a better service.
We have adopted a specialist team approach to our practices for many years. We feel that this is the way our clients want us to work, and that specialisation leads to the provision of a better service.
Insights
02/04/2026
By Hugh Sims KC, Jay Jagasia & Lottie Mallin-Martin
Judgment has today been handed down by the Supreme Court in the case of Kession Capital Limited v KVB Consultants & Ors [2026] UKSC 11. The headline is that it found that Kession Capital Limited (KCL) had no statutory vicarious responsibility for anything done by its appointed representative in carrying on business with retail clients, so reversing the decisions in the Courts below on this issue.
This is the first time the Supreme Court has had to consider whether an FCA authorised person (AP), as principal, can cut down its responsibility under section 39 of the Financial Services and Markets Act 2000 (FSMA) for acts done by its appointed representative (AR). In particular, the Court was asked to consider whether an AP could limit the scope of its responsibility by imposing restrictions, in the underlying appointed representative agreement (ARA), on carrying out investment business with a certain class of clients. It concluded it could.
This was an appeal against Mr Paul Stanley KC’s decision (sitting as Deputy High Court Judge) in the London Circuit Commercial Court, in which he found in favour of the 26 respondents on their application for summary judgment. The respondents were investors in failed property investment schemes, and Mr Stanley KC entered summary judgment against the appellant/twelfth defendant (KCL) for about £1.4m.
At the material time the investments were promoted, advised upon and arranged by or on behalf of the first (JHM) and tenth defendants (Mr Callen). JHM was the AR of KCL, an authorised person under FSMA. JHM was exempt (by 39(1) of FSMA) in relation to any regulated activity comprised in the carrying on of business for which KCL had accepted responsibility, in whole or in part, in the ARA. Although various claims were advanced against KCL (and the other defendants), the only claims on which the judge was prepared to enter summary judgment concerned those directed at section 39(3), which imposes responsibility on a principal of an AR but not liability, which must be found elsewhere.
The only question for the Supreme Court on appeal was whether KCL could cut down the scope of its responsibility to the respondents if JHM acted outside the restrictions in the ARA by carrying on business with retail clients. Many of the respondents were retail clients and had been incorrectly classified by JHM as either ‘elective professional’, ‘high net worth’, ‘professional’ or ‘sophisticated’ investors.
At first instance and in the Court of Appeal (by a majority), it was held that the restrictions in the ARA which sought to restrict JHM from carrying out investment business with retail investors, could not be relied upon by KCL to cut down the scope of its responsibility under section 39(3). However, this decision was unanimously overturned by the Supreme Court.
Lord Richards gave the judgment (with whom the other JSCs agreed). The issue on appeal was one of statutory construction (para 53), and particularly whether dealing with retail clients is, for the purposes of section 39(1)(b), a “part of” the business of a prescribed description. The starting point will always be the ordinary meaning of the words, and the Court held that “as a matter of ordinary language”, providing services to retail customers would likely represent a “clearly identifiable part” of a supplier’s business (para 58).
As to the purpose of the FSMA regime, the Court agreed with Lord Sumption’s comments in Asset Land (SC) (2016) that “most regulatory legislation is a compromise between the protection of consumers and the avoidance of regulatory overkill” (Asset Land, at para 88). It was held that section 39 should be interpreted with this compromise in mind, though ultimately the Court still felt that the needs of consumers (i.e., the retail clients) were well served by construing “part” of the business as including a division of the supplier’s business by reference to client classification (paras 62 to 70).
Further, the Court rejected the respondents’ arguments that:
The Court was left untroubled by the fact that the effect of the decision would be to provide the least protection for retail clients who were misclassified (para 77). This was because it viewed section 39 primarily working by putting in place a structure to ensure only those competent and qualified to deal with retail clients are permitted to do so (para 78).
Whereas previous case law referred to the whole point of section 39(3) being to ensure there is a safeguard for clients who deal with ARs, to ensure they have a long stop liability target, Lord Richards emphasised (at para 61) that section 39 overall has a number of different purposes, not just consumer protection, and preferred the formulation he had articulated in the Court of Appeal in Anderson v Sense Network Ltd [2019] EWCA Civ 1395, which refers to both underling regulatory and protective purposes.
The effect of the Supreme Court decision was that the respondent who was correctly classified as non-retail held on to his judgment (established at first instance and upheld in the Court of Appeal), but the other respondents must now establish another ground for liability on the part of KCL. There are some indications in the judgment that the Supreme Court considered this should not be too difficult to establish based on the APs supervisory duties under the Supervision Manual (SUP 12).
The Court’s decision underlines why it is so important for an AP to articulate, in the ARA, the restrictions it wishes to place on the services provided by its AR. Those restrictions must cover, at the very least, the limitations on the AP’s own Part 4A permissions. An AP who provides services to retail clients, outside its own Part 4A permissions, will be in breach of its regulatory obligations under FMSA, per section 20(1) (para 7). If an AP cannot provide regulated activities to retail clients, the AP must include that restriction in the ARA.
Even if an AP can provide certain services to certain client types (e.g., retail clients) under its Part 4A permissions, the AP might wish to include in the ARA a restriction of that nature. What we now know from the Court’s decision is that an AR who acts outside the restrictions drawn up in its ARA will not be exempt from the general prohibition under section 19(2). In other words, the AR will be guilty of a criminal offence under section 23(1), and the agreements into which it enters will be unenforceable, per section 26 (para 11).
The Court believes that its preferred interpretation of section 39 will force ARs to be extra cautious over their conduct, particularly on issues of say, client classification or reclassification. Lord Richards expressed the view this will best serve the interests of consumers – ARs would not want to fall foul of the general prohibition and commit a criminal offence (para 70).
The judgment is perhaps most striking for its reliance on financial services regulation operating on a “prophylactic basis”, seeking to prevent the occurrence of abuse (para 61, and 78). Some may question whether this is an unrealistic view and the best prophylactic would be to make the AP responsible for failings of the AR. But a mistake in relation to client classification may occur in circumstances where no abuse is intended, and the misclassification is accidental.
The Court seemed to be reassured in relation to this category of case by the notion that it did not think there would be much difficulty in deciding the correct categorisation of a client (para 74). The implicit steer from the Court seems to be that an AP might find it difficult to explain why, in these circumstances, it had not committed a breach of the SUP 12 rules (para.s 65-68). If such a breach is established then there would be a claim for damages under section 138D. In this respect it is worth noting that at first instance, the Deputy High Court judge only narrowly declined to award summary judgment on the SUP claims. He was persuaded that a judge might be persuaded that it had “done just enough to discharge its obligations. It is a long shot, but one KCL is entitled to play” (para 80).
During the course of the appeals KCL went into administration and was subsequently wound up. It seems likely therefore these points will fall to be tested in another case, and instead the respondents will now likely need to seek redress under the Financial Services Compensation Scheme.
Hugh Sims KC, Jay Jagasia, and Lottie Mallin-Martin acted for the 26 respondents. Hugh, Jay and Lottie were instructed by Jared Ursell and Aisha Wardell of Acuity Law Limited.
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