Kession Capital Ltd (in Liquidation) v KVB Consultants Ltd and others [2026] UKSC 11

Kession, an authorised firm restricted to professional clients, appointed JHM as its appointed representative on terms excluding retail clients. JHM sold failed property schemes to investors who claimed to be retail clients. The Supreme Court held that Kession was not responsible under section 39(3) FSMA for JHM’s retail dealings.

Background

This appeal concerned the appointed representative regime under section 39 of the Financial Services and Markets Act 2000 (FSMA). An authorised person may, by written contract, permit a non-authorised person (an appointed representative) to carry on regulated business. It thereby accepts responsibility for that person’s activities. The appointed representative is in turn exempted from the general prohibition in section 19.

Section 39(1)(b) requires that the appointed representative be someone “for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing”. Section 39(3) provides:

“The principal of an appointed representative is responsible, to the same extent as if he had expressly permitted it, for anything done or omitted by the representative in carrying on the business for which he has accepted responsibility.”

Material facts

Kession Capital Ltd (Kession) held a Part 4A permission covering, among other things, arranging deals in investments and advising on investments. At the material time (June 2015), one or both of those permissions were limited so as to exclude retail clients.

By an Appointed Representative Agreement dated 30 June 2015 (the ARA), Kession appointed Jacob Hopkins McKenzie Ltd (JHM) as its appointed representative. Several provisions excluded retail business:

• The definition of “Relevant Business” stated that “The AR is not permitted to conduct any business with retail clients”.
• Recital (B) recorded that JHM “will not advise on and arrange deals for retail clients”.
• Schedule 5 confirmed that Kession’s own permissions were limited to eligible counterparties and professional clients, and that JHM could not “give advice to retail clients”.

JHM promoted seven property development schemes. Under each scheme, shares in a property-owning company were held on bare trust for investors. JHM classified all investors as professional clients. All the schemes failed, with combined losses of £1.7 million.

The investors sued JHM, its director Mr Callen, the scheme companies, a legal practice and Kession. All but one claimant asserted that they were in truth retail clients. Judgment was obtained against the other defendants, none of whom could satisfy it. The claimants then sought summary judgment against Kession.

Decisions below

The Deputy High Court Judge (Paul Stanley KC) refused summary judgment on two bases but granted it on a third. He held that Kession was responsible under section 39(3) for JHM’s activities, and therefore liable under section 241, because the schemes were collective investment schemes. He treated the specification of investor characteristics as going to how the business was carried on, not what business was carried on.

The Court of Appeal (Males LJ and Sir Geoffrey Vos MR, Lewison LJ dissenting) affirmed. Males LJ gave three reasons:

1. The type of business is distinct from the clients for whom it is undertaken.
2. Client classification resembles a suitability assessment and so forms part of how the business is conducted.
3. Any other reading would leave professional clients better protected than retail clients.

Lewison LJ, dissenting, regarded the exclusion of retail clients as falling on the “what” side of the line. He was troubled by the prospect of an authorised person permitting an appointed representative to do what the authorised person was not itself permitted to do.

There was no appeal against the finding that the schemes were collective investment schemes.

The issue

The sole issue was whether Kession was responsible under section 39(3) for JHM’s dealings with retail clients. Put another way, the question was whether dealing with retail clients is a “part” of the business of a prescribed description within section 39(1)(b). If it is, an authorised person may validly exclude retail business from the responsibility it accepts.

The parties’ arguments

Kession (Mr Howarth KC)

Kession argued that section 39 protects consumers primarily through its regulatory structure, not merely by supplying a remedy. On this view, only competent and qualified appointed representatives, supervised by competent authorised persons, should deal with retail clients.

The respondents (Mr Sims KC)

The respondents’ primary submission emphasised the “centrality” of regulated activities. Any narrowing of the business for which responsibility was accepted had to be by reference to a category of business “properly so described”, such as a type of investment or a provider of investments, and not by reference to classes of client.

Alternatively, they submitted that a prohibition on retail dealing could operate as a contractual term, entitling the principal to remedies such as termination, while leaving the principal’s statutory responsibility under section 39(3) intact.

The Court’s reasoning

Lord Richards gave the judgment, with which the rest of the Court agreed.

Approach to construction

The Court applied ordinary principles of statutory interpretation, with consumer protection firmly in mind. It also invoked Lord Sumption’s caution in FCA v Asset LI Inc that “most regulatory legislation is a compromise between the protection of consumers and the avoidance of regulatory overkill”. Subject to that, “a reasonable interpretation that best promotes consumer protection is likely to be correct.”

The Court reaffirmed Anderson v Sense Network Ltd, which was not challenged. In particular, it endorsed the proposition that an authorised person may accept responsibility for only part of a category of business. The appointed representative’s exemption and the principal’s responsibility are “coterminous”.

Ordinary language and regulatory structure

Lord Richards observed that there is “no difficulty as a matter of ordinary language in describing dealing with retail clients as part of a financial services business”. He then identified two structural features of FSMA supporting that reading:

• The regime draws a fundamental distinction between retail and professional clients. COBS imposes heavier conduct rules for retail clients, including a ban on cold calling and rules on fees, together with stringent training and competence requirements.
• The FCA may itself restrict a Part 4A permission to professional clients under section 55E(5). This “suggests that ‘part’ of a business can be identified on the same basis for the purposes of section 39.”

The purpose of section 39 reconsidered

Critically, the Court rejected the Court of Appeal’s endorsement of the view in Ovcharenko v InvestUK Ltd that section 39(3) exists to give clients a “long stop liability target”. Lord Richards emphasised that financial regulation operates “primarily on a prophylactic basis, seeking to prevent the occurrence of abuse”. He preferred the formulation in Anderson:

“The purpose of section 39(1) is to confer exempt status on persons in a manner which will fulfil the underlying regulatory and protective purposes of the legislation. It may make perfect sense to limit an [appointed representative] to a partial exemption, having regard to the breadth and depth of the expertise of that [appointed representative] or indeed of the authorised person.”

Three consumer-protection grounds

First, the appointed representative regime depends on the authorised person acting as the regulator’s proxy, with the expertise to assess and monitor the appointed representative. The Court stated:

“It would defeat the regulatory purpose if an authorised person, whose experience and expertise lay in dealing with professional clients, was required to assume responsibility for an appointed representative’s conduct of retail business, notwithstanding that the permission granted to the appointed representative was for good reason limited to dealing with professional clients.”

The contrary view would lead to the “startling proposition” that a principal is responsible for retail dealings which its own permission excludes. That would conflict with the 1999 Explanatory Notes, which state that the principal “must therefore have permission … for all the activities”. It would also conflict with SUP 12.4.1A G and SUP 12.5.3 G.

Second, an authorised person may legitimately judge that an appointed representative is fit to deal with professional clients only. SUP 12.6.11 G, which requires the principal to take reasonable care that the appointed representative has adequate training and competence arrangements, could not be fulfilled if the appointed representative were not equipped for retail work.

Third, on the respondents’ construction, an appointed representative expressly prohibited from retail dealing would nonetheless be exempt when it did deal with retail clients. It would therefore escape the offence under section 23 and the unenforceability of its agreements under section 26. This would create, in the Judge’s phrase, a “promiscuously broad exemption”.

The Court added that imposing responsibility in such circumstances would involve “an element of regulatory overkill, and indeed unfairness”. It would also discourage appointments. If the FCA considered a different result appropriate, it might achieve it through its rule-making powers.

Rejection of the Court of Appeal’s reasons

Males LJ’s first reason. The Court accepted that the type of business differs from client identity. However, that did not prevent retail and professional dealings from forming distinct parts of the business.

Males LJ’s second reason. Lord Richards disagreed that client classification is akin to a suitability assessment. He gave three reasons:

• Many classifications involve no assessment at all.
• The elective professional test is not comparable to the “detailed and holistic evaluation” required for suitability.
• The default category is retail, so in most cases classification is unlikely to be difficult.

He added that, in any event, an element of assessment does not stop something from being a “part” of a business. On the “what/how” distinction, he explained:

“The point of the ‘what/how’ distinction is to make clear that an authorised person cannot escape responsibility under section 39(3) by relying on a contractual term that, for example, an appointed representative must conduct the business in accordance with applicable regulatory standards.”

Dealing with retail clients, by contrast, “relates to the scope of the business, not to the way in which it is carried on.”

Males LJ’s third reason. The argument that professional clients would enjoy greater protection than retail clients was held to misunderstand how section 39 works. It protects consumers primarily through structure, not remedy.

Rejection of the respondents’ submissions

The contractual-breach submission was inconsistent with section 39. Under that section, the agreement itself prescribes both the extent of the permission and the corresponding responsibility.

The “centrality of regulated activities” submission was also rejected. Lord Richards reasoned that if Anderson permits a restriction by reference to providers of investments, which is not derived from the statutory definitions, there is no reason to exclude a restriction by reference to categories of client. That is especially so given the importance of client categories within the regime.

Lewison LJ’s dissent

Lord Richards agreed with Lewison LJ that judgment should not have been entered against Kession. He did not, however, accept Lewison LJ’s tentative view that Kession was not an “authorised person” when dealing with retail clients. Once authorised, a person is authorised for all purposes, although it will be in breach of its regulatory obligations if it acts outside its Part 4A permission.

Practical significance

The decision confirms that authorised persons may validly confine their section 39 responsibility, and the appointed representative’s exemption, by reference to categories of client. A clear exclusion of retail clients in an appointed representative agreement is effective to define the scope of the business, not merely how it is conducted.

Several consequences follow:

• Retail investors misclassified as professional by an appointed representative cannot look to the principal under section 39(3).
• The appointed representative itself loses its exemption. It is therefore exposed to criminal liability under section 23, and its agreements become unenforceable under section 26.
• The judgment recalibrates the purpose of section 39 away from the “long stop liability” conception in Ovcharenko and towards a prophylactic, structural model of consumer protection grounded in the principal’s competence and supervisory capacity.
• It refines and confirms the Anderson “what/how” distinction, while warning against substituting that phrase for the statutory language.
• It signals that any broader allocation of responsibility is a matter for the FCA’s rule-making powers rather than judicial construction.

Verdict: Appeal allowed unanimously. The Supreme Court held that dealing with retail clients is a ‘part’ of the business of a prescribed description within section 39 FSMA. As the issue had been fully argued, the Court ruled as a final decision that Kession had no responsibility under section 39(3) for anything done or omitted by JHM in carrying on business with retail clients.

Source: Kession Capital Ltd (in Liquidation) v KVB Consultants Ltd and others [2026] UKSC 11