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

Kession, an authorised financial services firm, appointed JHM as its representative but prohibited dealing with retail clients. JHM wrongly dealt with retail clients who lost investments. The Supreme Court held that dealing with retail clients constitutes a distinct 'part' of business under section 39 FSMA, so Kession was not responsible for JHM's unauthorised retail dealings.

Facts

Kession Capital Ltd (‘Kession’) was an authorised person under the Financial Services and Markets Act 2000 (‘FSMA’) with Part 4A permission to advise on and arrange deals in investments, but only for professional clients, not retail clients. By an Appointed Representative Agreement (‘ARA’) dated 30 June 2015, Kession appointed Jacob Hopkins McKenzie Ltd (‘JHM’) as its appointed representative. The ARA expressly prohibited JHM from conducting business with retail clients, limiting it to professional clients and eligible counterparties only.

JHM promoted investment schemes involving residential property development. All investors were classified by JHM as professional clients. However, all schemes failed, resulting in total losses of approximately £1.7 million. The investors issued proceedings, with most asserting they were in fact retail clients who had been misclassified. They sought to hold Kession liable under section 39(3) FSMA for JHM’s dealings with them as retail clients.

Issues

The central issue was whether Kession, as the authorised person, was responsible under section 39(3) FSMA for JHM’s activities in dealing with retail clients, notwithstanding that the ARA expressly prohibited JHM from dealing with retail clients and Kession’s own Part 4A permission excluded retail clients.

More specifically, the question was whether dealing with retail clients constitutes a ‘part’ of the ‘business of a prescribed description’ within section 39(1)(b) FSMA, such that an authorised person can validly limit its acceptance of responsibility to exclude retail clients.

Judgment

The Supreme Court unanimously allowed the appeal. Lord Richards, with whom Lord Lloyd-Jones, Lord Sales, Lady Rose and Lady Simler agreed, delivered the judgment.

Interpretation of Section 39 FSMA

Lord Richards emphasised that section 39 permits an authorised person to accept responsibility for ‘the whole or part of’ the business carried on by an appointed representative. The extent of exemption under section 39(1) and responsibility under section 39(3) are coterminous.

“The scheme of section 39(1) is thus clear. An AR is an exempt person only to the extent that an authorised person has accepted responsibility for the business to be carried on by the AR.”

Lord Richards held that dealing with retail clients is, as a matter of ordinary language and regulatory significance, properly treated as a ‘part’ of a financial services business:

“There is no difficulty as a matter of ordinary language in describing dealing with retail clients as part of a financial services business… The different treatment of retail and professional clients in the regulation of financial services forms a very important element of the regime, on account of their significantly different needs as regards protection.”

Consumer Protection Purpose

The Court rejected the argument that consumer protection required an authorised person to be responsible for an appointed representative’s dealings with retail clients regardless of contractual restrictions. Lord Richards explained that FSMA operates primarily on a prophylactic basis:

“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 Court found three substantial grounds supporting its interpretation: (1) authorised persons should only supervise business for which they have competence; (2) appointed representatives may be qualified for professional but not retail work; and (3) without such interpretation, appointed representatives prohibited from dealing with retail clients would nonetheless be exempt from criminal and civil consequences if they did so.

Rejection of Court of Appeal Reasoning

The Court disagreed with Males LJ’s reasons in the Court of Appeal, including his view that client classification is merely ‘how’ rather than ‘what’ business is conducted, and his concern about differential protection for professional versus retail clients.

Implications

This decision clarifies that under section 39 FSMA, an authorised person may validly limit its acceptance of responsibility for an appointed representative’s activities by reference to client categories. Dealing with retail clients constitutes a distinct ‘part’ of a prescribed business that can be excluded from the scope of an appointed representative’s appointment.

The judgment emphasises that consumer protection under FSMA operates primarily through prophylactic measures—ensuring that only properly qualified and supervised persons deal with vulnerable client categories—rather than merely providing remedies after harm occurs. Authorised persons are not responsible for activities expressly excluded from an appointed representative agreement, provided such exclusions relate to a genuine ‘part’ of the business rather than merely prescribing how permitted activities should be conducted.

Verdict: Appeal allowed. The Supreme Court ruled as a final decision that Kession Capital Ltd had no responsibility under section 39(3) FSMA 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