Financial Services SpeedRead: 13 February 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 policy statement on reforming the commodity derivatives regulatory framework

On 5 February 2025, the FCA published a policy statement (PS25/1) on reforming the commodity derivatives regulatory framework. Appendix 1 of PS25/1 contains the FCA instruments making the relevant amendments. 

The policy statement summarises the feedback received on the FCA's previous consultation paper (CP23/27) on the same topic. It sets out the FCA's responses to that feedback and the final position on the rules and guidance to be introduced. The policy statement confirms that:

• the scope of the position limits regime will be limited to 14 critical contracts in order to allow trading venues greater discretion to calibrate scope;
• trading venues will be given flexibility to calibrate position limits according to market conditions, features of the market and the underlying commodity;
• two new exemptions from position limits will be introduced for (i) liquidity providers; and (ii) financial firms dealing with non-financial firms hedging risks arising from their commercial activities;
• the risk management condition relating to the current hedging exemption will be amended to a less prescriptive assessment, no longer requiring non-financial entities or the relevant trading venue to submit a more detailed stress test;
• trading venues will be required to have the power to obtain over the counter (OTC) position data; and
• trading venues will be required to set accountability thresholds for spot months (although will be afforded discretion in assessing whether an accountability threshold is appropriate for other months).

The rules enabling trading venues to receive and process applications for exemptions from position limits and transitional provisions relating to trading venues will come into force on 3 March 2025. The majority of the other reforms will come into force on 6 July 2026, with exemptions granted under the current regime continuing until 5 July 2026. The FCA expects to receive trading venues' proposed frameworks for position limits, accountability thresholds, exemptions, position management and monitoring in H1 2025.

2. FCA consults on draft changes to public offer and admission to trading regime and the UK Listing rules

On 31 January 2025, the FCA published a consultation paper (CP25/2) containing further draft changes to the Public Offers and Admissions to Trading Regulations 2024 (POATRs) and the UK Listing Rules supplementing its previous consultation published on 26 July 2024 regarding the new framework which will replace the UK prospectus regime.

The aim of these changes is to ease capital raising and to streamline the UK Listing Rules as part of the FCA's efforts to make the UK a globally competitive financial centre. Proposed changes include:

• aligning prospectus requirements for non-equity securities to a single standard based on the current standards for wholesale denomination bonds;
• removing the requirement for a separate listing application for further issuances of securities which are already listed; and
• removing the Listing Particulars as a listing admission document.

The consultation remains open to feedback and will close on 14 March 2025, with the FCA aiming to finalise rules and publish a policy statement in summer 2025.

3. FCA consults on further proposals for firms operating public offer platforms

On 31 January 2025, the FCA published a consultation paper (CP25/3) setting out additional proposals for implementing the new public offer platform (POP) regime. The POP regime will form part of the POATRs which will replace the UK Prospectus Regulation (EU) 2017/1129.

CP25/3 aligns with and builds upon the FCA's earlier proposals concerning the POP regime (CP24/13) (published on 26 July 2024). 

The consultation paper intends to develop the regulatory requirements surrounding the POP regime, and particularly details (i) how firms will submit authorisation applications, and (ii) its intended supervisory approach (including PERG guidance on the regime for firms approving the financial promotions of unauthorised persons, extending the compulsory jurisdiction of the Financial Ombudsman Service (FOS) to the regulated activity of operating a POP, and the fees to charge POP operators). The FCA also sets out its initial views on how a transitional regime might operate while it considers variation of permission requests that existing firms may submit.

The FCA invites responses to its proposals under CP25/3 by 14 March 2025; and plans to take these into account alongside previous feedback received, with a view to publishing final rules for the POP and the POATRs in summer of 2025.

4. European Commission extends time-limited equivalence for UK central counterparties

On 31 January 2025, the European Commission published a decision which extends the equivalence for UK Central Counterparties (CCPs) for a period of three years until 30 June 2028.

The purpose of the extension is to provide time for the implementation of EMIR 3, which aims to contain measures which will help reduce the EU's overreliance on systemically important UK CCPs, thereby intending to reduce risks to EU's financial stability in the medium term. The BoE welcomed the extension of EU equivalence for UK CCPs in a statement here. 

The decision will enter into force immediately and will apply from 1 July 2025. 

5. ESMA publishes strategic priorities and objectives for 2026 – 2028 

On 31 January 2025, ESMA published a programming document detailing its strategic priorities and objectives for the 2026 – 2028 period. 

The key strategic priorities and thematic drivers can be summarised as follows:

• Effective Markets and Financial Stability: ESMA intends to develop a proportionate and effective single rulebook, enhance market efficiency and promote global standards.
• Effective Supervision: ESMA intends to ensure that all supervised entities comply with regulatory requirements, enhance supervisory efficiency, and promote a common supervisory culture across the EU.
• Retail Investor Protection: ESMA will work with NCAs to protect retail investors, monitor retail investor trends, and increase its efforts to ensure that firms and market participants use simplified disclosures and clear language to enhance retail investor participation in capital markets.
• Sustainable Finance: ESMA intends to facilitate the EU's transition to a sustainable economy, address greenwashing risks and enhance ESG expertise.
• Effective Use of Data and Technological Innovation: ESMA intends to enhance its role as a data hub and data-driven regulator, including utilising AI-powered tools in relation to its supervision of firms.

6. ECB publishes FAQs on initial margin model approvals under EMIR 3 

The European Central Bank (ECB) has published 11 FAQs on initial margin model approvals under Regulation (EU) 2024/2987 (EMIR 3). 

The FAQs address questions ranging from the ECB's interim approach until the EBA's regulatory technical standards and guidelines on the application and authorisation processes under EMIR 3 apply, how long the approval process will take and which banks are affected by the EBA's no action letter on the application of EMIR 3.

7. FCA issues first fine for transaction reporting failures under MiFIR

On 29 January 2025, the FCA published a Final Notice dated 27 January 2025 regarding transaction reporting by Infinox Capital Limited (Infinox). 

Over a six-month period ending 31 March 2023, Infinox did not meet the transaction reporting requirements under the Markets in Financial Instruments Regulation (MiFIR), by failing to report within the required timeframes single-stock CFD trades that took place via one of its corporate brokerage accounts. Whilst Infinox subsequently reported the relevant transactions to the FCA, this was not done within the time required under the transaction reporting regime. Following the FCA's five-step framework set out its Handbook, and after adding a 30% discount for early settlement, the FCA imposed a total fine on Infinox of £99,200.

This fine was imposed in light of the FCA's recent scrutiny around transaction reporting generally. As indicated in the FCA's Market Watch 81 (November 2024), multiple organisations are continuing to experience transaction reporting failings and the FCA expects firms generally to make necessary enhancements to their transaction reporting processes. For more information on the FCA's Market Watch 81, please see the edition of our Financial Services Speedread here. 

Banking and Prudential

8. PRA publishes Climate Change Adaptation Report 2025

On 30 January 2025, the PRA published its third Climate Change Adaptation Report examining the steps taken by banks and insurers since the publication of it second report in 2021 to respond to the impacts of climate change.

The PRA states that, overall, banks and insurers have taken positive steps to implement the supervisory expectations set out in its supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change. However, the PRA goes on to state that levels of adoption vary and further progress is needed by all firms.

The PRA's report also sets out the physical and transition risks that pose the most threat to the sector, the PRA's response to those risks, and its proposed next steps. In particular, the PRA will focus on updating its expectations and aims to issue a consultation paper on its proposed updates to its supervisory statement (SS3/19) during 2025. 

Once the final supervisory statement is published, the Climate Financial Risk Forum (CFRF) (co-chaired by the PRA and FCA) will provide a forum for industry to collaborate in building on existing guidance and tools to help firms manage climate risks in line with the revised supervisory expectations.

Fund Management

No new entries.

Senior Managers and Governance

9. FCA publishes COO speech 'Culture is contagious'

On 4 February 2025, the FCA published a draft version of the speech delivered by Emily Sheppard (the FCA's Chief Operating Officer) at the 10th Annual Culture and Conduct in Financial Service Summit on the same day. 

Ms Sheppard's speech emphasises the importance of establishing a robust and healthy culture given its impact on conduct and outcomes in the market. Ms Sheppard also highlights the need for cooperation from market participants in building that culture for the benefit of the "future of the financial system". 

The key points arising out of the speech are:

• Importance of culture: Failings in culture and governance are responsible for most failures of consumer protection and market conduct.
• Long-term growth: In order to achieve long-term economic growth, the financial services sector need to foster an open, constructive, inclusive and lessons-learned culture.
• Toxic culture: Non-financial misconduct (NFM) and toxic behaviours pose significant risks, harms and "regulatory concern" to consumers and the markets. Ms Sheppard referred to the FCA's findings of its recent survey on NFM across wholesale financial firms, noting that it is how these behaviours are dealt with, or not dealt with, which "makes the difference". The FCA expects to set out more detail on its proposed next steps relating to NFM "shortly".
• Role of senior leaders: Healthy cultures need to be monitored and maintained, with senior leaders (and their accountability) playing a vital role. The FCA will be collaborating with the PRA and HMT to review and improve the SM&CR, with a consultation paper due for publication in due course.

Financial Crime

No new entries.

Retail Services

10. FCA announces strategy for mortgage intermediaries

On 30 January 2025, the FCA published a Dear CEO letter detailing its supervisory focus for mortgage intermediaries over the next two years.

The FCA emphasised that its key area of focus is to see the Consumer Duty embedded in mortgage intermediaries, and set out the following other areas of focus:

• improving the quality of advice and ensuring firms consider customers' personal and financial circumstances;
• manging conflicts of interest particularly with regard to sales targets and financial incentives;
• ensuring firms conduct fair value assessments; and
• balancing financial promotions with respect to highlighting both benefits and relevant risks.

The FCA expect CEOs to discuss this letter with their leadership teams and address these areas of focus.

Digital Finance and Fintech

11. UK government publishes the Financial Services and Markets Act 2023 (Digital Securities Sandbox) (Amendment) Regulations 2025 

On 30 January 2025, HMT published The Financial Services and Markets Act 2023 (Digital Securities Sandbox) (Amendment) Regulations 2025 (SI/2025/93) (the DSS Amendment Regulations), which are due to come into force on 3 March 2025.

The DSS Amendment Regulations amend the Financial Services and Markets Act 2023 (Digital Securities Sandbox) Regulations 2023 (the DSS Regulations) by referring to the modification to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). Specifically, the effect of the MLRs is modified by temporarily disapplying the provisions that apply to cryptoassets and other assets that fall under the Digital Securities Sandbox (DSS), in order to reduce the disproportionate burden of AML obligations under the MLRs on firms holding cryptoassets (and similar). It is intended that such exemption will enable and encourage greater activity in the DSS. Non-cryptoasset related AML requirements will continue to be maintained, and monitored.

The DSS Amendment Regulations also incorporate minor changes to theFinancial Services and Markets Act 2023 (Digital Securities Sandbox) Regulations 2023 (SI/2023/1398) including in relation to infringement reporting, financial market infrastructures' activities, and s.20 FSMA.

It is not anticipated that the DSS Amendment Regulations will have a significant cost impact on businesses in the sector, and HMT therefore issued a de minimis impact assessment on the same day.

12. Treasury Committee's call for evidence on AI in financial services 

On 3 February 2025, the UK Parliament Treasury Committee (Committee) published a call for evidence in relation to its inquiry on AI in financial services, which is intended to investigate how AI might be best utilised in financial services whilst continuing to protect consumers and the stability of the financial sector.

The Committee invites responses to five questions surrounding AI in the financial services sector, in particular: 

• the current usage of AI across different sectors of financial services and how this may change over the next 10 years; 
• how AI can improve productivity in financial services;
• the risks to financial stability arising from AI and potential mitigants;
• the benefits and risks presented by AI usage, particularly for vulnerable customers; and
• how the Government and regulators can help support and maximise AI usage in financial services alongside protecting customers and helping ensuring financial stability.

Responses are due for submission by 5pm on 17 March 2025.

13. ESMA publishes supervisory briefing on authorisation of CASPs under MiCA 

On 31 January 2025, ESMA published a supervisory briefing and accompanying press release providing guidance for NCAs on best practice and recommended approach to the authorisation of cryptoasset service providers (CASPs) under MiCA, to ensure alignment by NCAs across Member States. 

The briefing details ESMA's regulatory expectations for CASPs in relation to, among others, (i) governance structures and the ability of CASPs to operate autonomously with sufficient in-country personnel; (ii) outsourcing of CASP functions; and (iii) suitability of the executive management board in demonstrating good knowledge of the crypto eco-system. 

The briefing also sets out key risk factors for NCAs to consider when assessing CASP authorisation applications, including (among others): (i) size and complexity of CASP group structure; (ii) significant cross-border activity; and (iii) level and type of outsourcing. 

NCAs are expected to apply the principles in the supervisory briefing when accessing CASP authorisation applications, and to monitor the adherence of CASPs to such principles on an ongoing basis post-authorisation. 

Payments

14. EBA publishes final report on data reporting on charges for credit transfers, payments accounts, and shares of rejected transactions 

On 4 February 2025, the EBA published a final report (and accompanying press release) which implements technical standards on uniform reporting templates for banks, payment institutions and e-money institutions (PSPs) on the level of charges for credit transfers and shares of rejected transactions. These technical standards form part of the EBA's mandate to standardise reporting from PSPs to NCAs under the Instant Payment Regulations, which amend the SEPA Regulation. 

The technical standards require PSPs to report charges for credit transfers and payment accounts, including breakdowns by type of transfer (national and cross-border), type of payment service users, and type of payment initiation channels. PSPs must also report on the share of rejected transfers on the basis of EU restrictive measures, as mandated under the SEPA Regulation.

The EBA has also published Annexes with the reporting template and instructions on how to complete the templates in accordance with the requirements (see here and here, respectively). The deadline for the first harmonised reporting has been postponed by 12 months to April 2026, with subsequent reporting from the NCAs to the EBA postponed to October 2026. 

15. PSR publishes new compliance monitoring framework 

On 4 February 2025, the PSR published a new compliance monitoring framework (PS25/2) and accompanying webpage providing insight into the PSRs approach to monitoring compliance with payments regulations, and key expectations for firms in relation thereto. 

The PSR's monitoring principles and priorities include:

• A proportionate and risk-based approach: the PSR seeks to use data and intelligence from a wide range of sources to target areas with more potential for a negative impact on end users of payment systems.
• Acting quickly: where the PSR identifies potential compliance failures with potentially negative impacts on end users, it will aim to act quickly to prevent such negative impacts and work to ensure that firms remedy any issues to prevent similar instances in the future.
• Clear, reciprocal engagement: the PSR aims to be as transparent as possible about its priorities and areas of focus, and will seek to engage with firms at the earliest opportunity . Firms are expected to be transparent about compliance failures to facilitate reciprocal open engagement.

The PSR intends to publish further documents throughout 2025 (i) updating the PSR Process and Procedures Guide and (ii) setting out a similar monitoring framework document in relation to the PSRs enforcement work. 

16. FCA publishes Dear CEO Letter detailing priorities for payments portfolio firms 

On 3 February 2025, the FCA published a Dear CEO Letter setting out its priorities for payments portfolio firms. The letter sets out three key outcomes for firms which the FCA deems essential to ensuring good customer outcomes, including (i) effective competition and innovation to meet customer's needs; (ii) no compromise of financial system integrity; and (iii) safeguarding of customer funds. 

The FCA emphasises the importance of innovation, particularly through open banking and open finance, and urges firms to fully implement the Consumer Duty. The FCA also expects firms to enhance governance, oversight, and systems to protect customer funds, including adhering to safeguarding rules and maintaining effective wind-down plans. Crime prevention and operational resilience are also highlighted as critical to maintaining financial system integrity. Finally, the FCA stresses the need for robust governance, especially for firms with hybrid business models, and encourages engagement with regulatory developments to ensure compliance and foster growth.

ESG

17. EU Platform on Sustainable Finance publishes report on "Simplifying the EU taxonomy to foster sustainable finance"

On 5 February 2025, the EU Platform on Sustainable Finance published a usability and data report on proposals for the simplification of the EU taxonomy to foster sustainable finance. The report responds to the European Commission's mandate to simplify and improve the effectiveness of the EU taxonomy framework to enhance its usability. 

The report makes four key proposals to the European Commission to achieve this goal:

• Reduction in corporate reporting burden: a reduction of more than one-third in corporate reporting burdens, through (among others): (i) simplifying reporting templates with clear reduction of data points; (ii) enhancing alignment of financial reporting; and (iii) introducing materiality thresholds for reporting combined KPIs in line with the Accounting Directive; 
• Symmetrical and simplified "Green Asset Ratio" disclosures: simplifying retail exposure reporting and allowing for estimates and proxies for reporting in conjunction with safe harbours to protect against greenwashing allegations;
• A practical approach to "Do No Significant Harm" criteria: introducing a lighter compliance assessment process regarding evidence, compliance, documentation and/or on EU regulations; and
• Assisting SMEs to access sustainable finance: adopting a simplified approach to the Taxonomy for listed SMEs.

Other

18. European Commission publishes call for evidence on the Savings and Investment Union 

On 3 February 2025, the European Commission published a call for evidence to gather input on its overall approach to the Savings and Investment Union (SIU). The SIU is a European Commission initiative to strengthen EU prosperity and competitiveness, aimed at developing a strategy for supporting household wealth creation by increasing the returns on savings of EU citizens and widening the financing opportunities for business. 

The purpose of the call for evidence is to gather evidence from consumers and stakeholders regarding progress made on the Capital Markets Union, as well as identifying significant challenges that the Savings and Investment Union should address. 

19. FCA publishes regulatory round up 

On 30 January 2025, the FCA published its regulatory round-up.

In its round-up, the FCA announced that it was taking action to reduce the burden of regulatory reporting for firms and to increase the value of the data it collects from firms through its Transforming Data Collection programme, in partnership with the BoE. Under this programme, the FCA is launching 'My FCA' in spring 2025 which will provide firms with a single point of sign in for Connect, RegData, and the firm's page on the Register. 

The FCA is also consulting on removing three of its regular returns, which would benefit up to 16,000 firms and reduce the size of the handbook. More information on the 'My FCA' portal can be found on the FCA's webpage, here.

The regulatory round-up also covered the following points:

• Authorisation process: The FCA is updating the process (including the "firm details" form) to improve verification, guidance, navigation and accessibility. Firms registered with Companies House must go to the Companies House website to ensure their details are correct as soon as possible, since the new form will use the registered name, registered address, and financial year-end as the official record for a firm.
• Professional indemnity insurance (PII): The FCA reminds firms with appointed representatives that where PII is a requirement, principals must have in place a policy that meets its requirements, including by covering the activities of current and former appointed representatives and introducer appointed representatives.
• FCA and Practitioner Panel survey: The FCA is sending its latest survey to all regulated firms so they can share their feedback on how the FCA regulates the industry. The results will be published in the summer of 2025.

20. UK Government publishes statutory instrument replacing references to retained EU law 

On 27 January 2025, the UK Government published a statutory instrument and explanatory memorandum titled: The Retained EU Law (Revocation and Reform) Act 2023 (Consequential Amendments) Regulations 2025 (SI/2025/82).

The statutory instrument makes consequential amendments to secondary legislation by removing references to "retained EU law", and replacing such references with "assimilated law". These amendments reflect the removal of EU interpretative effects at the end of 2023 and the abolishment EU law supremacy, such that UK courts are no longer required to apply general principles of EU law and where legal conflicts arise with EU and domestic legislation, the latter will take precedence. 

The statutory instrument will come into force on 27 February 2025.