Financial Services SpeedRead: 04 June 2025 edition

Welcome to the latest edition of the Financial Services SpeedRead, a collection of bite-sized updates designed to help you keep on top of key regulatory developments in financial services over the preceding fortnight. Please get in touch if you want to explore any of the topics covered in this fortnight's edition of Financial Services SpeedRead in more detail.

Financial Markets

1. FCA publishes new webpages on new Private Intermittent Securities and Capital Exchange Systems

On 27 May 2025, the FCA published two webpages on the new Private Intermittent Securities and Capital Exchange System (PISCES), setting out how to apply to run a PISCES platform (see here and here). For a summary of PISCES and further details on the related regulations published by HM Treasury on 15 May 2025, please see our previous Financial Services SpeedRead here.

All prospective operators must apply for a PISCES approval notice (PAN) from the FCA (see here). Applications will be open for operators to join the sandbox in June 2025, when the final rules are published. To operate a PISCES platform, an entity must be either a UK recognised investment exchange (RIE) or a UK-based firm with the appropriate FCA permissions (i.e. one or more of: "Arranging deals in investments", "Operating a multilateral trading facility" and "Operating an organised trading facility"). If a firm does not yet have the necessary permissions, it may apply for authorisation at the same time as applying for a PAN.

The FCA is offering free pre-application support to prospective operators via a one-hour online meeting, including feedback on draft rulebooks, business plans, operating models and risk assessments that will need to be submitted. Firms will also need to evidence why their proposed operating model qualifies for the PISCES sandbox and how they will comply with the relevant requirements.

The webpages also explain that companies using a PISCES platform will have significant control over the trading process, including determining when their shares may be traded, who can buy them, setting floor and/or ceiling prices, and managing the disclosure of information about the company and its share transactions. The types of investors that can use PISCES platforms include sophisticated investors, high-net worth individuals and institutional investors.

The FCA will be updating its webpage with further details on the application process once its final rules are published in June 2025. The sandbox will run until June 2030, and the FCA and Treasury will monitor the outcomes to determine whether to transfer PISCES into permanent legislation.

2. EU Commission proposes measures to support small mid-cap enterprises

On 21 May 2025, the EU Commission published its proposal for a Directive to amend the MiFID II Directive for the extension of certain mitigating measures available for small and medium sized enterprises (SMEs) to small mid-cap enterprises (SMCs) as a new category of companies. An SMC will be a company with fewer than 750 employees, and either up to €150 million in turnover or up to €129 million in total assets – in other words, enterprises that are three times the size of SMEs.

The proposed Directive aims to extend the support currently available for SMEs to SMCs, helping them to access SME growth markets by making the listing of SMCs simpler and cheaper. Investments in SMCs would also potentially become more attractive, therefore facilitating their access to funding. The various measures aim to reduce annual administrative costs for companies by €400 million.

The proposal is referred to as the fourth Simplification Omnibus package under the Commission's mandate to simplify rules and reduce administrative burdens across the Single Market (see here).

Member states are expected to adopt and publish measures implementing the proposed Directive twelve months after its entry into force and to apply those measures from the following day.

3. EU Commission publishes Delegated Regulation in relation to OTC derivatives identifying reference data under MiFIR

On 22 May 2025, the EU Commission published Commission Delegated Regulation (EU) 2025/1003 (the Delegated Regulation) in the Official Journal of the European Union. The Delegated Regulation supplements MiFIR in relation to over-the-counter (OTC) derivatives identifying reference data to be used for the purposes of the transparency requirements laid down in Article 8a(2) and Articles 10 and 21 of MiFIR.

The goal of the Delegated Regulation is to specify the reference data that should be used from 1 September 2026 to identify OTC interest rate swaps and OTC credit default swaps for the purposes of the transparency requirements under the relevant MiFIR articles.

The Annexes at the end of the Delegated Regulation provide a table specifying the identifying reference data for OTC interest rate swaps. A second table also sets out standard business terms for the reference rates for OTC interest rate swaps.

The Delegated Regulation will enter into force on 11 June 2025.

4. European Parliament votes to shorten the settlement cycle in the EU

On 20 May 2025, the European Parliament published a press release on its vote to shorten the settlement cycle for transactions in transferable securities executed on EU trading venues to a settlement period of one business day (T+1). The Economic and Monetary Affairs Committee adopted the text with 48 votes in favour and 4 abstentions.

The European Parliament clarified that its decision would not prevent central securities depositories from voluntarily settling transactions on the same date as the date of the trade (T+0).

The final text will now need to be negotiated with the European Council.

Banking and Prudential

5. European Council publishes text of proposed regulation amending the Capital Requirements Regulation's treatment of securities financing transactions

On 28 May 2025, the European Council published the text of a proposed regulation containing amendments to the Capital Requirements Regulation (CRR) relating to requirements for securities financing for securities financing transactions (SFTs) under the net stable funding ratio (NSFR) (the Amending Regulation).

The Amending Regulation will amend Article 510 of the CRR to make permanent the existing treatment for monies due from SFTs and unsecured transactions with a residual maturity of less than six months. It will also require the EBA to report to the Commission every five years on the appropriateness of the treatment.

The Amending Regulation is intended to come into force on 29 June 2025.

6. PRA publishes policy statement in relation to SME and infrastructure lending adjustments

On 22 May 2025, the PRA published a policy statement (PS7/25) with its near-final policy on small and medium-sized enterprises (SME) and infrastructure lending adjustments to Pillar 2A.

In a previous policy statement (PS9/24), the PRA announced it would introduce Pillar 2A lending adjustments to minimise potential disruption to SME and infrastructure lending resulting from the removal of the support factors under Pillar 1. The support factors currently under Articles 501 and 501a of the UK Capital Requirements Regulation are being removed as part of the PRA's implementation of the Basel 3.1 standards. The core principles in the latest near-final policy statement are consistent with PS9/24, but further detail is provided on the methodology for setting Pillar 2A adjustments for eligible SME and infrastructure lending.

The PRA near-final policy is expected to take effect from 1 January 2027, the same date as the PRA's implementation of the Basel 3.1 standards.

7. PRA publishes consultation paper proposing updates to Pillar 2A methodologies and guidance

On 22 May 2025, the PRA published a consultation paper (CP12/25) proposing updates to Pillar 2A methodologies and guidance, as part of its two-stage review of Pillar 2A capital requirements. The proposed updates are to address the impacts of the near-final PRA rules implementing the Basel 3.1 standards.

The PRA's proposals include, among others:

Credit risk:

• removing the benchmarking methodology (including IRB benchmarks) currently set out in the existing PRA statement of policy;
• introducing two systematic methodologies to assess areas where the PRA considers capital requirements are often underestimated (i.e. central governments / banks);
• introducing expectations for firms on the use of credit scenarios in ICAAPs;

Operational risk

• introduce expectations on scenario analysis to improve quality / consistency of firms' ICAAPs;
• clarify what factors the PRA considers when setting Pillar 2A capital requirements for operational risk, and additional factors considered for significant firms;

Market risk and counterparty credit risk

• provide information on Pillar 2A methodology used to inform the setting of Pillar 2A capital requirements for:
  • market risk (including illiquid risks); and
  • counterparty credit risk (including settlement risk, where they are not sufficiently captured through Pillar 1 Capital).

The deadline for responses to the consultation paper is 5 September 2025. Once the first phase has been completed, the PRA intends to carry out an in-depth review of individual methodologies within Pillar 2A, following which it will publish a further consultation paper setting out their proposals.

8. PRA publishes final rules and policy on its approach to branch and subsidiary supervision

On 20 May 2025, the PRA published a policy statement (PS6/25) following its recent consultation (CP11/24) on updates to the supervisory statement on its approach to supervision of international firms (SS5/21).

The PRA will still be introducing additional indicative criteria that it will consider when determining whether an international bank should operate in the UK as a branch or a subsidiary, and will proceed with its revisions to SS5/21 relating to expectations of firms' booking arrangements. The PRA will also be proceeding with revised reporting requirements for third-country branches, to improve the collection of whole firm liquidity data. Alongside PS6/25, the PRA published a supervisory statement on guidelines for completing regulatory reports (SS34/15) and confirmed the deletion of its supervisory statement on branch liquidity reporting (SS1/17).

There have, however, been a number of changes to the final policy since the PRA's consultation (CP11/24) with respect to:

• branch risk appetite: for example, the PRA has increased two existing indicative thresholds by 30% to broadly mirror inflation since initial calibration, and amended the Branch Return Form to no longer require a transactional breakdown of instant access deposit balances and number of customers;
• booking expectations: the PRA has clarified the scope of application, modified booking responsibilities and trade capture language, and generally provided clearer drafting; and
• liquidity reporting: the PRA has aimed to provide flexibility with respect to dates firms can use for the provision of liquidity information, and has clarified reporting expectations in stress, the scope of whole-firm reporting, and certain reporting definitions.

Updates to SS5/21 took effect on 20 May 2025, whilst the updates to SS34/15, reporting guidance for the Branch Return Form, and updated branch reporting rules will take effect from 1 March 2026. With respect to booking arrangements, the relevant firms should undertake a self-assessment against the revised expectations to a timeline agreed with their PRA supervisory contact.

Fund Management

No new entries.

Senior Managers and Governance

No new entries.

Financial Crime

No new entries.

Retail Services

9. FCA publishes a research note containing lessons from 2 large language model (LLM) pilots on consumer guidance

On 30 May 2025, the FCA published a research note examining the potential usefulness and limitations of large language models (LLMs) in consumer-facing financial services, following its two pilot projects exploring the practical applications of LLMs.

The pilots were designed to assess both the methodologies firms might use to evaluate consumer outcomes through LLMs, and to deepen the FCA's understanding of their effectiveness. The first pilot tasked LLMs with simplifying complex financial terms, while the second compared the effectiveness of LLM-generated responses in a fixed chatbot for cash savings queries against a traditional website-based Q&A format.

Following the pilots, the FCA concluded that:

• LLMs have potential to make complex information more accessible, significantly improving readability and comprehension for consumers. However, ensuring the accuracy and appropriateness of their outputs requires robust evaluation frameworks that combine expert human judgement with automated assessment tools;
• the effectiveness of LLMs is highly context-dependent. Outcomes such as user comprehension and engagement are influenced by how the technology is integrated into the customer journey, including the design and delivery of content; and
• the way information is presented, whether through a chatbot or a Q&A page, can materially affect consumer understanding and decision-making.

In parallel with these pilots, the FCA published an engagement paper, "Proposal for AI Live Testing," outlining plans for live AI model testing pilots. These initiatives are intended to support the safe and responsible deployment of AI in financial services, ultimately promoting positive outcomes for UK consumers and markets.

10. ESMA publishes call for evidence on the retail investor journey to understand retail participation in capital markets

On 21 May 2025, ESMA published a call for evidence to gather feedback from stakeholders on the retail investor journey, focusing on MiFID II requirements affecting retail investment in capital markets. Alongside this, ESMA has also published a summary of the call for evidence specifically prepared for consumer organisations, to make it easier to engage with the questions that are most relevant for them.

The aim of the call for evidence is to evaluate whether current rules effectively protect investors and whether the investor journey can be simplified without compromising on protections. ESMA is especially interested in whether certain disclosure, suitability and appropriateness requirements might create unintended barriers for retail investors. The key areas under review include:

• regulatory disclosures: whether current disclosures (including in relation to costs, risks, and firm information) are clear and helpful, or whether they are overly complex;
• suitability assessment: whether the information collected by firms to match products to investors' needs, financial situations, and preferences (including sustainability) are appropriate, and whether firms are correctly balancing protection with accessibility; and
• appropriateness assessment: whether the knowledge and experience test for non-advised services is effective, and whether firms are correctly balancing protection and accessibility.

The call for evidence also considers the growing interest of younger investors in speculative and volatile assets like cryptocurrencies, and the impact of digitalisation and social media on this trend.

The feedback period ends on 21 July 2025. During Q3 2025, ESMA will determine whether regulatory changes or clarifications are needed.

11. UK Government publish response to Buy-Now, Pay-Later Regulation consultation

On 19 May 2025, HM Treasury published its response to its October 2024 consultation on the regulation of Buy-Now, Pay-Later (BNPL). Please see our previous edition of the Financial Services SpeedRead here for details of the consultation.

Key points of interest in the response include:

• the regulation will cover BNPL agreements from third-party lenders, but products offered directly by merchants will remain exempt under Article 60F(2) of the RAO;
• the disclosure requirements under the CCA will not apply to BNPL products, for which the FCA will draft and consult on bespoke rules;
• financial promotions communicated by merchants which are not authorised, and who offer third party lender BNPL agreements, will need to be approved by an authorised person;
• most credit broking activities relating to BNPL will be excluded; and
• the government will legislate for a temporary permissions regime to ensure that BNPL is brought within the scope of regulation as soon as possible.

In addition to the consultation response, HM Treasury confirmed that it would lay the draft statutory instrument (the Financial Services and Markets Act 2000 (Regulated Activities etc) (Amendment) Order 2025) before Parliament, which contains the relevant amendments to the Consumer Credit Act and the RAO. Once this comes into effect, the FCA will have 12 months to draft, consult on and finalise its rules for BNPL lending. This means that BNPL products will enter regulation around mid-2026.

Digital Finance and Fintech

12. FCA publishes new draft rules for issuing stablecoins and crypto custody

On 28 May 2025, the FCA published two consultation papers: CP25/14 on the proposed rules and guidance for firms carrying on the regulated activities of issuing qualifying stablecoins and safeguarding qualifying crypto assets; and CP25/15 on proposed prudential rules and guidance for firms carrying out the regulated activities of issuing qualifying stablecoins and safeguarding qualifying crypto assets. The consultations were published as part of the FCA's intention to develop a safe, competitive and sustainable cryptoasset sector.

See our recent article regarding these two consultation papers here for further details. Both consultations will remain open until 31 July 2025 and the FCA intends publish the final rules in 2026.

Payments

No new entries.

ESG

13. EBA publishes consultation paper proposing amendments to ESG reporting

On 22 May, the EBA published a consultation paper (EBA/CP/2025/07) setting out draft implementing technical standards (ITS) amending Commission Implementing Regulation 2024/3172.

The ITS propose to amend the Pillar 3 disclosure framework by incorporating requirements under CRR III relating to certain ESG disclosures. They aim to enhance transparency and consistency in disclosures regarding ESG risks, equity exposures, and aggregate exposures to shadow banking entities, while reducing reporting burdens, especially for smaller and less complex institutions.

Key features of the proposed ITS include:

• a proportionate approach: Non-large banks will use simplified reporting templates, with SNCIs and other non-listed institutions disclosing only essential ESG information;
• full alignment of Pillar 3 disclosures with the Taxonomy Regulation (EU) 2020/852;
• clarified and improved requirements for large listed institutions, reflecting feedback from EBA Q&As regarding the Pillar 3 framework currently in place; and
• full alignment of the Pillar 3 disclosure requirements with the Taxonomy Regulation.

The consultation is open for comments until 22 August 2025.

Other

14. ESMA publishes letters to social media companies on unauthorised financial ads

On 28 May 2025, ESMA published a press release announcing, with attached links, that it has written to major social media companies, urging them to address unauthorised financial advertisements. Social media platforms contacted include X, Meta, TikTok, Alphabet, Telegram, Snap, Amazon, Apple, Google and Reddit.

In the letters, ESMA and the EU national competent authorities highlight the increase in online scams targeting retail investors and called for cooperation from social media platforms to reduce harm from fraudulent actors.

The letters encouraged platforms to reference the ESMA register of MiFID II investment firms to verify whether any business that wishes to promote on the platform has been authorised to provide investment services or is acting on behalf of an authorised firm.

The addressees were are also encouraged to consider the initiative launched by the International Organization of Securities Commissions on 21 May 2025, which addresses the global nature of online financial misconduct.

The recipient companies were asked by ESMA to confirm receipt of the letter, alongside their availability to arrange a meeting to discuss the issue.

15. FCA publishes consulatation paper on improvements to the complaints reporting process

On 22 March 2025, the FCA published a consultation paper (CP25/13) setting out its proposals in relation to improving the way firms report customer complaints to the FCA.

The FCA's proposals include:

• consolidating five existing complaints returns into a single return (including returns relating to Dispute Resolution, Consumer Credit return, Payment Services, and Claims Management Companies);
• removing the group reporting option for complaints and require only reporting at individual firm level (to reduce risk of misreporting being unidentified by the FCA); and
• providing a revised list of complaints categories for firms, removing product types not regularly used, and adding product types based on those often reported through the existing 'other' category'.

Responses to the consultation can be provided by 24 July 2025, following which the FCA intends to publish a policy statement by the end of the year.

Key Contacts: Penny Chamberlain, Junior Associate; Tiegan Cormie, Junior Associate; Roni Fass, Junior Associate