Financial Services SpeedRead: 08 May 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. EU Commission welcomes reports of barrier to financial market integration

On 24 April 2025, the EU Commission published the webpage for its dedicated channel to allow all market participants (individuals or businesses) to report any barrier to financial market integration within the EU Single Market. The creation of the channel was announced as part of the Savings and Investments Union communication on 19 March 2025. See our previous edition of Financial Services SpeedRead here for more information.

The EU Commission has set out various issues that may be reported, including (but not limited to): market fragmentation, divergent supervisory practices, licensing and freedom of doing business (including discriminatory practices) and overly burdensome or repetitive reporting requirements.

All feedback should be submitted to the EU Commission through the designated email address (FISMA-SIU-barriers-reporting@ec.europa.eu).

Banking and Prudential

2. The UK Government publishes draft statutory instrument to further protect customer from debanking

On 28 April 2025, the Government published a draft statutory instrument setting out new rules regarding account closures. Under the proposed Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025, Banks will be required to provide customers 90 days' notice – an increase from the 2 months currently required – and a clear explanation before closing accounts. The intention for the increased notice period is to give customers more time to challenge decisions that they disagree with and find alternative payment service providers in the event their account is closed or payment service is terminated.

The new rules, which are subject to Parliamentary approval, are expected to come into force from 28 April 2026. The FCA will update its payment services and electronic money approach document to reflect the legislative changes relating to contract terminations.

3. FCA consults on definition of regulatory capital for FCA investment firms

On 24 April 2024, the FCA published a consultation paper (CP25/10) regarding the definition of regulatory capital, also known as own funds, applicable to FCA investment firms within MIFIDPRU 3. The FCA intends to remove references to the UK Capital Requirements Regulation from the definition.

The FCA does not intend on varying the levels of regulatory capital that firms are expected to hold, or requiring firms to adjust their capital arrangements. The FCA's aim is rather to simplify and consolidate the existing rules on regulatory capital so that relevant firms can better appreciate and apply these requirements.

The current proposals are relevant to MIFIDPRU investment firms, their UK parent entities that must comply with MIFIDPRU 3 due to their consolidated situation, and parent undertakings subject to the Group Capital Test. To note, however, the FCA also suggests that it may apply a single, clearer definition of own funds to other sectors in the future, where appropriate.

Responses to the consultation should be submitted via the CP25/10 response form, or via email, by 12 June 2025. Subject to feedback received, the FCA aims to publish the final rules in a Policy Statement in H2 2025, and expects the new framework to come into force on 1 January 2026.

4. BoE: Consultation Paper on the PRA's proposals in relation to MiFID Org Reg

On 23 April 2025, the BoE published a consultation paper (CP9/25) on the PRA's proposals to restate the MiFID Organisational Regulation (UK Commission Delegated Regulation (EU) 2017/565, the MiFID Org Reg) into the PRA Rulebook, to the extent the requirements are relevant to PRA-authorised firms. The proposals cover the following aspects of the MiFID Org Reg: general organisational requirements, outsourcing, record keeping, compliance and internal audit and risk management.

The proposals would not result in material changes to the current requirements on firms. The PRA's aim is rather to restate existing firm-facing requirements into the Rulebook prior to HM Treasury's revocation of the legislation (as assimilated law), following its announcement of changes to the Markets Financial Instruments Directive (MiFID II) as part of the UK Government's "commitment to reinvigorate capital markets".

Still, the PRA states that the changes will allow it to more easily update rules according to emerging market trends and enable firms to effortlessly locate all of the applicable requirements in a single location.

Responses to the consultation should be submitted by 23 June 2025. The PRA expects any changes to be implemented in the second half of 2025 (by both the FCA and PRA in separate policy statements).

5. PRA publishes Policy Statement on identification and management of step-in risk

On 22 April 2025, the PRA published a policy statement (PS5/25) on the identification and management of step-in risk. This statement provides the PRA's feedback to responses received on its consultation paper published on 5 December 2023, and sets out the final rules on step-in risk for CRR firms that are not small domestic deposit takers.

Of particular note, under the new rules, firms will be required to undertake regular assessments to ensure they are appropriately identifying and managing step-in risk, and to consider whether actions are required to mitigate any step-in risk. Following feedback, the PRA is removing the requirement for firms to consider its relationship with a third-party securitisation special purpose entity for step-in risk, if its only relationship is an investment in a senior securitisation position.

The PRA has also decided to take a phased approach to finalising their policies in respect of shadow banking entities and groups of connected clients.

The new step-in rules will come into effect on 1 January 2026. Firms will also need to consider the PRA's supervisory statement on step-in risk which was published alongside PS5/25, setting out the PRA's expectations for firms undertaking step-in risk assessments and linking to the reporting guidance to be used by these firms.

Fund Management

No new entries.

Senior Managers and Governance

No new entries.

Financial Crime

6. ESMA publishes its final report on supervisory practices for competent authorities to prevent and detect market abuse in cryptoassets

On 29 April 2025, ESMA published its final report on guidelines which establish general principles to ensure high-quality and effective supervision of market abuse in cryptoassets. The Guidelines outline specific practices for National Competent Authorities (NCAs) regarding detection and prevention whilst advocating for risk-based and proportionate supervisory activities. The Guidelines also aim to foster a common supervisory culture for cryptoassets through open dialogue with industry and collaboration with other NCAs.

The Guidelines will be translated into all EU languages and published on the ESMA website, they will start applying three months from this date.

7. FCA delivers speech on agenda to combat market abuse

On 28 April 2025, Therese Chambers, joint executive director of enforcement and market oversight at the FCA, delivered a speech at the Market Abuse and Market Manipulation Summit.

The FCA's strategy to combat market abuse is through a 'three Ps' approach: being predictable, proportionate and purposeful. Predictability involves clear communication and transparency in decision making. Proportionality means asking no more of firms than necessary, focusing on the most critical data and reducing reporting burdens where possible. Purposefulness entails targeted and deliberate actions to prevent and address market abuse, with a focus on outcomes that matter.

Key points for firms to takeaway from the speech are as follows:

• Transaction reporting: To reduce the burden on firms, the FCA is streamlining transaction reporting requirements. Ms Chambers referred to the FCA's related discussion paper published in November 2024 – for more information on the discussion paper, please see our briefing here.
• STOR regime: The FCA emphasised the importance of the Suspicious Transaction & Order Reports (STOR) regime, noting over 70% of the FCA's current market abuse investigations originate from a STOR.
• Inside information: The FCA is increasing its efforts to eliminate strategic leaks and unlawful disclosures, recently discussing strategies to do so at a joint roundtable with the heads of merger and acquisition teams from major investment banks.

8. EBA publishes final report on draft RTS on the criteria for the appointment of central contact points for electronic money issuers, payment service providers and crypto-asset service providers

On 25 April 2025, the EBA published a final report containing new draft RTS defining when electronic money issuers, payment service providers and crypto-asset service providers have to appoint a central contact point. The central contact point will ensure compliance with local anti-money laundering and counter terrorist financing obligations where regulated firms are operating in an EU member state that is not their 'home' member state.

The draft RTS sets out both the conditions under which firms should appoint a central contact point and the roles and responsibilities of a central contract point.

The draft RTS will be submitted to the EU Commission for endorsement. Following this it will then be scrutinised by the European Parliament and Council before being published in the Official Journal of the European Union.

Retail Services

9. FCA simplifies supervisory communications as part of its Consumer Duty Requirements Review

On 24 April 2025, the FCA published a press release regarding its intention to stop issuing and publishing portfolio letters as part of its Consumer Duty Requirements Review. Instead, a selected number of market reports containing communications relevant to different types of firm and insights from the FCA's supervisory work will be published.

As part of this move, which should occur later this year, the FCA aims to retire historical portfolio letters and Dear CEO letters so that its up-to-date supervisory communications are easier to access. Where appropriate, it will also mark letters as 'historical' and no longer current.

Digital Finance and Fintech

10. FCA publishes a discussion paper on its approach to regulating trading platforms, intermediaries, staking, lending and borrowing and DeFi

On 2 May 2025, the FCA published a discussion paper (DP25/1) seeking views on its future approach to regulating crypto-asset trading platforms, intermediaries, lending and borrowing, staking, and decentralised finance (DeFi).

DP25/1 contains the FCA's proposals in relation to the following areas:

• Cryptoasset trading platforms (CATPs): The FCA has proposed policy that is analogous to the current rules and obligations applied to trading venues in traditional financial markets;
• Intermediaries: The FCA is considering proposals including regarding the necessity of pre-trade transparency requirements and the potential form of post-trade transparency requirements for some crypto-asset intermediaries;
• Cryptoasset lending and borrowing: The FCA has produced a range of proposals, including restricting firms from offering these products to consumers in their current structure;

• Staking: In light of the potential risks resulting from retail customers not fully understanding the blockchain validation process and technology, the FCA has made a range of proposals, including that firms must get consumers' consent on the amount of staked crypto assets, conditions for payment, return of cryptoasset, repayment and fees;

• DeFi: DeFi activities will not be covered by the regime where they are truly decentralised. However, where there is a clear controlling person carrying on the activity, they will be covered by the proposed regime; and
• Use of credit to buy cryptoassets: The FCA is exploring options for restricting firms from accepting credit as a means for consumers to buy cryptoassets.

The discussion paper closes for feedback on 13 June 2025.

11. FCA announces AI Live Testing Service

On 29 April 2025, the FCA published a press release and engagement paper announcing its plan to launch a live AI testing service, allowing firms to collaborate with the FCA to ensure their AI tools are market-ready. It will also enable the FCA to understand how AI may impact UK financial markets.

This initiative, part of the existing AI Lab, aims to support AI deployment and achieve positive outcomes for consumers and markets.

The AI Live Testing will run for approximately 12-18 months.

Before launching the live AI testing service, the FCA is seeking views on the engagement paper. Feedback can be submitted by 10 June 2025. The FCA then plans to launch the service in summer 2025.

12. UK Government announces new cryptoasset regulation

On 29 April 2025, the UK Government published near-final draft legislation for regulating cryptoasset services offered by firms. The proposed Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 will bring crypto exchanges, dealers, and agents into the regulatory framework, and will require crypto firms with UK customers to meet standards on transparency, consumer protection, and operational resilience.

The draft legislation is structured the following way:

• Part 1: enables the FCA and PRA to issue rules, guidance, and directions ahead of the regime's commencement, which will occur on a later date to be set in the final order. This will not, however, delay the timings for when cryptoasset firms will need to comply with the new regime;
• Part 2: amends the Regulated Activities Order (RAO) to create new categories of specified investments, including "qualifying cryptoassets" and "qualifying stablecoins", and associated new specified activities such as stablecoin issuance and safeguarding of qualifying cryptoassets;
• Part 3: amends section 418 of FSMA in order to, among other things, include cryptoasset firms carrying out certain activities for UK retail customers within the geographic scope of the regulatory perimeter;
• Part 4: updates the Financial Promotions Order to align definitions with the new legislation and adds new controlled activities;
• Part 5: adjusts the Money Laundering Regulations (MLRs) to account for the new crypto-specific regulated activities. Firms will not be required to additionally register under the MLRs, to avoid duplicative compliance burdens. However, firms will still need to notify the FCA and the existing requirements of the MLRs will continue to apply to authorised firms in full. This Part 5 makes consequential amendments to other pieces of relevant secondary legislation; and
• Part 6: the FCA will be setting a period ahead of full commencement of the regime for firms to submit advance applications for authorisations, and will also be setting out arrangements for existing cryptoasset service providers.

Details of the FCA's planned market abuse and admissions and disclosure elements of the cryptoasset regulatory regime have not been included in the draft legislation, and will instead be published in due course.

Firms can submit technical comments on this draft legislation via email until 23 May 2025. In particular, HM Treasury will consider any changes that need to be made in order to achieve the stated policy that was published alongside the draft legislation, which is in final form.

The Government intends to legislate for the new cryptoasset regulatory regime by the end of this year.

Payments

13. FCA publishes examples of good and poor practice in relation to international payment pricing transparency

On 1 May 2025, the FCA published the findings of its review on transparency on the cost of international money remittance and cross-border payments. This sets out good and poor practices of communications made by firms and involved a review of the websites of firms offering UK customers international money remittance and cross border payments. The FCA assessed whether firms’ communications provided clear pricing information before a transfer was initiated.

The FCA looked at whether firms provided certain information including the amount to be remitted or transferred; the exchange rate to be applied; the amount a recipient received (in local currency); variable fees; and total remittance fees.

The FCA states that some firms clearly displayed the amount recipients would receive based on the amount remitted, as well as detail of fees and charges. However, this was not always the case. Shortcomings identified include: transaction fees were not always clearly displayed; additional fees, such as those charged by intermediary banks, were not often displayed up front; it was not always clear fees could vary; and relevant information for consumers was not always easy to find.

ESG

14. ESMA publishes consultation paper on technical standards under the ESG Rating Regulation

On 2 May 2025, ESMA published an RTS under Regulation (EU) 2024/3005 focused on the transparency and integrity of ESG rating activities. The consultation aims to establish key elements of the regulatory regime for ESG rating providers in the EU.

The consultation sets out the following draft RTS:

• the information that should be provided in the applications for authorisation and recognition to operate in the EU as an ESG ratings provider;
• the measures and safeguards that should be put in place to mitigate risks of conflicts of interest within ESG rating providers who carry out activities other than the provision of ESG ratings. These safeguards are divided into general organisational requirements applicable to all providers and specific technical and control measures for certain activities. This approach is designed to maintain the integrity of ESG ratings by ensuring that providers implement robust internal controls and maintain clear separations between different business activities; and
• the information that ESG ratings providers should disclose to the public, rated items and issuers of rated items, as well as users of ESG ratings. This aims to ensure that disclosures are made in a comparable and consistent manner.

The consultation closes for comments on 20 June 2025, with ESMA planning to publish a final report and submit the draft RTS to the European Commission for adoption in October 2025.

15. PRA consults on enhancing approaches to managing climate-related risks

On 30 April 2025, the PRA published a consultation paper (CP10/25) which proposes updates to its supervisory statement (SS3/19) addressed at helping banks and insurers to manage the financial risks for their business arising from climate change.

The consultation follows requests from firms to clarify the PRA's expectations with respect to firms building their climate-related risk management capabilities, where the PRA is currently seeing uneven progress.

The proposals cover the following key areas:

• Governance: the proposals clarify the need for boards to set and own the business risk appetite for climate change. The proposals also detail the corporate governance structures necessary for effective climate-related risk management;
• Risk management: the proposals introduce clearer expectations for identifying and assessing material climate-related risks. Firms are expected to develop appropriate metrics and limits to monitor and manage these risks, ensuring a structured approach to risk identification and assessment;
• Climate scenario analysis (CSA): the proposals encourage firms to ensure they understand the calibration of CSA and to enhance CSA capabilities on an ongoing basis; and
• Disclosures: the PRA proposes aligning SS3/19 with the UK Sustainability Reporting Standards (SRS), ensuring transparency and consistency in climate-related information.

The consultation closes to comments on 30 July 2025 and the draft supervisory statement will replace SS3/19 upon finalisation.

16. FCA publishes update regarding extending the Sustainability Disclosure Requirements regime to portfolio managers

On 29 April 2025, the FCA published an update to the webpage regarding its consultation paper (CP24/8) on extending the SDR to portfolio managers. The FCA announced that it has reflected on feedback received, and will be taking the time to consider the challenges and ensure that portfolio managers are positioned to implement the regime effectively before introducing requirements. It has therefore decided it is not the right time to finalise rules on extending SDR to portfolio managers.

Other

No new entries.

Authors: Penny Chamberlain, Junior Associate; Tiegan Cormie,  Junior Associate; Roni Fass, Junior Associate; Anjali Naik, Legal Apprentice