---
title: "The AR agreement: required contract terms under SUP 12.5 · Merrin"
description: "Every AR needs a written contract with its principal. The terms SUP 12.5 requires, and what the FCA criticised in 2026."
url: https://merrin.ai/glossary/ar-agreement
---

[Glossary](https://merrin.ai/glossary)

# AR agreement

Every AR must have a written contract with its principal. The contract is what makes the AR exempt: it sets out the business the AR may do, records the principal's acceptance of responsibility, and must contain the terms the Treasury's regulations and SUP 12.5 require.

## Required terms

- Require the AR, and anyone providing services to it, to comply with the relevant requirements in or under FSMA (SUP 12.5.5R(2)).
- Where other principals are allowed, require the AR to tell the principal about any proposed appointment by another principal, changes to that business and its termination (SUP 12.5.5R(3)).
- Allow the principal to terminate if it can no longer adequately oversee the AR. Termination should not be automatic (SUP 12.5.5R(4), SUP 12.5.4G).
- For IARs, limit the scope to introductions and non-real-time promotions (SUP 12.5.7R).

## Should also include

- Terms that keep the AR within the principal's permission, co-operation with the FCA and access to premises, auditor rights, and the information the principal needs, including anything that could trigger a review (SUP 12.5.3G).
- Escalation and MI expectations, where appropriate (SUP 12.4.4GG).
- The principal keeps the original and every amendment (SUP 12.9.1R), and must have systems to enforce the contract (SUP 12.6.11AR).

## Common misconceptions

**“Contracts signed before 2022 are fine as they are.”**

The termination term had to be added at the first renewal or revision after 8 December 2022.

**“The contract only needs to list the activities.”**

The FCA's April 2026 review criticised AR agreements that did not clearly accept responsibility or include the required terms.

## In Merrin

Merrin drafts the agreement from the principal's template and sends it for signing, or stores a copy signed elsewhere, against the firm's record.

[AR onboarding](https://merrin.ai/features/onboarding)

## Related terms

- [Scope of appointment](https://merrin.ai/glossary/scope-of-appointment)
- [Multiple principals](https://merrin.ai/glossary/multiple-principals)
- [AR](https://merrin.ai/glossary/appointed-representative)

## Sources

Checked against these sources on 23 October 2026. This is general information, not legal advice.

- [FCA Handbook, SUP 12](https://www.handbook.fca.org.uk/handbook/SUP/12/)
- [FCA: Managing potential risks of inactive appointed representatives (April 2026)](https://www.fca.org.uk/publications/good-and-poor-practice/managing-potential-risks-inactive-appointed-representatives)

## See what your team could stop doing by hand

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