Financial Services SpeedRead: 15 January 2026 edition
16 January 2026
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 extends derivatives trading obligation direction to 30 June 2026
On 2 January 2026, the FCA published an explanatory statement under Article 28a(9) of UK MiFIR confirming the extension of its direction on the UK derivatives trading obligation (DTO) for a further six months, to 30 June 2026.
The direction permits firms subject to the UK DTO, when trading with or on behalf of EU clients subject to the EU DTO, to execute those trades on EU trading venues, provided certain conditions are met. For example, firms must take reasonable steps to satisfy themselves that the client does not have arrangements in place to execute the trade on a trading venue to which both the UK and EU have granted equivalence.
The FCA stated that the statutory conditions for the direction remaining in effect continue to be satisfied (namely: (1) the direction is needed to prevent or mitigate disruption; and (2) it advances the FCA's operational objectives).
A further review will be conducted at the conclusion of the six-month period (30 June 2026).
2. FCA publishes amendments to regulatory contactless limits
On 19 December 2025, the FCA published Handbook Notice 136 outlining the latest amendments to the technical standards on strong customer authentication and common and secure methods of communication. The FCA also published a related press release outlining the greater flexibility provided from the removal of red tape by the FCA on the use of contactless.
The amendments aim to remove the regulatory contactless limits and implement a new risk-based exemption to give greater flexibility to banks and other payment service providers (PSPs) to determine their approach to contactless payments.
The rule changes are expected to come into force on 19 March 2026, after which it will be up to firms if and when they take up the greater flexibility to change any contactless limits.
3. FCA publishes policy statement on Ancillary Activities Test
On 18 December 2025, the FCA published a policy statement setting out changes to simplify the ancillary activities test (AAT). The AAT allows a firm to be exempt from authorisation as an investment firm where its trading in commodity derivatives, emission allowances, or derivatives of emission allowances qualifies under the AAT.
The new rules introduce the following three separate and independent tests to assess a firm's eligibility for such exemption:
1. Annual threshold test (new).
2. Trading test (modified).
3. Capital employed test (modified).
Firms need only satisfy one test to rely on the exemption. Each test is an alternative route to qualifying for the exemption.
The new AAT framework is expected to come into force on 1 January 2027, with transitional relief available until 1 January 2028.
4. ESMA publishes report on cross-border marketing of funds
On 6 January 2026, ESMA published its third report on marketing requirements and communications for cross-border distribution of funds, adding for the first time statistics on notifications of cross-border marketing of funds.
The report, mandated biennially under Regulation (EU) 2019/1156 on facilitating cross-border distribution of collective investment undertakings, provides an overview of national marketing requirements and analyses the effects of national rules governing marketing communications. ESMA also presents EU-wide statistics on UCITS and AIF marketing notifications and market concentration.
The main finding of this report is that national rules regarding the marketing of funds have not been subject to any significant changes since 2023. This is because most of the changes highlighted in the 2023 report had been driven by the transposition of the Directive (EU) 2019/1160 on cross-border distribution of collective undertakings and the entry into force of the Regulation and the ESMA guidelines on the format and content of marketing communication. Therefore, most of the conclusions and analysis of the national rules laid down in the 2023 report, which have been set out in our previous Financial Services SpeedRead here, are still valid.
The next iteration of this report will be submitted to the European Parliament, the Council of the European Union and the EU Commission in two years.
Banking and Prudential
5. EBA publishes final guidelines on ancillary services undertakings
On 9 January 2026, the European Banking Authority (EBA) published final guidelines specifying the criteria for identifying ancillary services undertakings (ASUs) under Article 4(1)(18) of Regulation (EU) No 575/2013 (the Capital Requirements Regulation).
The guidelines aim to promote harmonised practices across the EU by clarifying which activities should be considered a "direct extension of banking", "ancillary to banking", or similar activities, ensuring consistent application of the prudential consolidation framework and addressing regulatory perimeter issues identified in previous EBA reports and the 2022 Joint ESA response to the European Commission's call for advice on digital finance.
The guidelines cover five areas:
- general provisions;
- criteria for identifying activities as a direct extension of banking;
- criteria for determining activities ancillary to banking;
- a process for the EBA to identify other similar activities on a case-by-case basis; and
- clarification on the concept of "principal activity" of an ancillary services undertaking.
The ancillary to banking assessment is limited to undertakings that must or may be included in the prudential consolidation scope under Articles 11 and 18 of Regulation (EU) No 575/2013. Competent authorities must report compliance within two months of publication of the official language translations.
6. ESMA publishes final regulatory technical standards specifying the booking arrangements for third-country branches
On 9 January 2026, the European Banking Authority published its final report on the draft Regulatory Technical Standards (RTS) specifying the booking arrangements that third-country branches must apply under the Capital Requirements Directive (CRD), as amended by CRD VI. The report follows the consultation issued by ESMA in July 2025.
The RTS establish requirements in three core areas:
- Bookkeeping methodology: the RTS define the approach for identifying and recording assets and liabilities booked or originated by the third-country branch, including off-balance sheet items;
- Minimum required content: the RTS specify the minimum information necessary to keep a comprehensive and precise track record of booked or originated assets and liabilities; and
- Risk-related information: the RTS detail the risk data and associated risk management measures that must be maintained in the registry book for the activities of the branch.
The EBA was required to submit the draft RTS to the EU Commission by 10 January 2026.
7. FCA publishes engagement paper on risk capital requirements for investment firms
On 16 December 2025, the FCA published an engagement paper on potential changes to market risk capital requirements for FCA investment firms.
The paper is largely aimed at solo-regulated investment firms with permission to deal in investments as principal, where managing a trading book is part of their regulated activities.
The FCA is reviewing how its specific rules on market risk capital can be made more appropriate for investment firms, given that current requirements are based on the UK Capital Requirements Regulation, which was originally designed for banks. It notes that the harm caused by investment firm failure may be less than that caused by bank failure, meaning different capital requirements could be set that better reflect the harm.
The engagement paper sets out approaches the FCA could take to encourage wholesale trading, improve market liquidity, and reduce barriers to entry for specialised trading firms.
The FCA is seeking feedback on those approaches by 10 February 2026 and plans to host a roundtable towards the end of January 2026. The FCA aims to publish a consultation paper on the review in 2026.
8. Single Resolution Board publishes expectations on valuation capabilities
On 16 December 2025, the Single Resolution Board (SRB) published its Expectations on Valuation Capabilities (EoVCs). The EoVCs set out enhanced expectations for banks' management information systems to support fair, prudent and realistic valuations in resolution.
The publication introduced three main components:
- a Valuation Data Index (VDI) comprising structured and unstructured information;
- a Data Repository for Resolution (DRR) with specified minimum functionalities; and
- valuation playbooks documenting internal valuation models, governance arrangements and self-assessment processes.
Banks are expected to submit the VDI to the DRR on an annual basis by 30 April, with year-end cut-off dates for the two preceding years. Banks are also expected to establish permanent DRRs to ensure critical valuation information is readily available, with the capability to grant SRB and independent valuer access within 24 hours when requested.
The EoVCs apply to resolution entities and relevant legal entities within the banking union, with a gradual phase-in period to allow banks to adapt existing capabilities. Banks are expected to progressively implement EoVCs by the end of 2029.
9. HMT consults on future regulatory regime for benchmarks
On 17 December 2025, HMT published a consultation on replacing the Benchmarks Regulation (BMR) with a new Specified Authorised Benchmarks Regime (SABR).
Under the proposed regime, only benchmarks or benchmark administrators posing systemic risks to UK financial markets would be regulated, reducing the number of regulated administrators by approximately 80 to 90 per cent.
HMT would designate benchmarks or administrators based on advice from the FCA, applying qualitative criteria focused on impact to the integrity of the UK financial system, consumers, or the market measured by the benchmark.
The consultation also covers ESG benchmarks, commodity benchmarks, and contributor requirements, and proposes maintaining the FCA's emergency intervention and wind-down powers over designated benchmarks.
The consultation closes on 11 March 2026.
10. Government publishes UK FSMA 2023 (Prudential Regulation of Credit Institutions) (Consequential Amendments) Regulations 2025
On 17 December 2025, the Government published the Financial Services and Markets Act 2023 (Prudential Regulation of Credit Institutions) (Consequential Amendments) Regulations 2025 (the Regulations). The publication follows the draft version of the Regulations which were laid before the UK Parliament in October, and forms part of the UK’s ongoing post-Brexit programme under the Financial Services and Markets Act 2023 (FSMA 2023) to repeal and replace assimilated EU financial services law.
Under section 1 of FSMA 2023, several provisions of the UK Capital Requirements Regulation (CRR) were revoked by virtue of the FSMA 2023 (Commencement No. 10 and Saving Provisions) Regulations 2025. Most of the revoked CRR provisions will be replaced by the PRA rules.
The Regulations also make consequential technical amendments to UK legislation following the revocation of specific provisions of the UK CRR relating to the definition of capital and total loss absorbing capacity (TLAC) requirements.
The Regulations came into force on 1 January 2026.
Senior Managers and Governance
No updates.
Financial Crime
No updates.
Retail Service
11. European Parliament and Council agree an informal deal to boost citizens' investments in financial markets
On 18 December 2025, the European Parliament and Council published a press release about a provisional agreement on new rules for the so-called 'retail investment strategy'. They have agreed on a series of changes to several EU directives with the overall aim of reinforcing investor protection rules, addressing retail customers participation in capital markets, and reducing dependence on bank loans especially for smaller companies.
Key points include:
- Elective professional test: under the retail investment strategy, there are expected changes to expand the quantitative criteria for professional client opt-up.
- Inducements: a new test to ensure that investment and insurance companies act in the best interests of clients and enable clients to distinguish inducements from other fees.
- Packaged retail and insurance-based investment products (PRIIPs): negotiators made changes to the key information document (KID) for PRIIPs so that it provides meaningful, forward-looking performance scenarios based on realistic data and plausible assumptions.
- Investment advice in clients' best interests: financial and insurance advisors must ensure that the financial or insurance products and services they provide are suitable for their clients’ needs, using proportionate and necessary information about the client.
The provisional agreement requires formal approval by both European Parliament and Council before the new rules can enter into force.
12. Government publishes Consumer Composite Investments (Designated Activities) (Amendment) Order 2025
On 18 December 2025, the Government published the Consumer Composite Investments (Designated Activities) (Amendment) Order 2025. This statutory instrument amends the Consumer Composite Investments (Designated Activities) Regulations 2024 (CCI Regulations) to support transition to the new disclosure regime.
Specifically, the instrument amends the CCI Regulations to provide temporary exemptions from the financial promotion and scheme promotion restrictions under FSMA. The temporary exemptions apply to firms advising on or selling consumer composite investments, formerly Packaged Retail and Insurance-based Investment Products (PRIIPs), that may still continue to produce key information documents (KIDs) during the consumer composite investment (CCI) regime transitional period.
The new CCI regime will commence upon revocation of Regulation (EU) 1286/2014 (the PRIIPs Regulation) on 6 April 2026. The CCI transitional period is due to end on 8 June 2027. However, there is a long-stop date of 8 December 2028, inserted by the instrument, for the effect of these exemptions.
Digital Finance and Fintech
13. ESMA publishes tips for responsible promotions by finfluencers
On 8 January 2026, ESMA published 6 tips for finfluencers to ensure the responsible promotion of financial products and/or services.
ESMA directed the following points at finfluencers:
- finfluencers could be held legally responsible for any adverse consumer outcome;
- any gifts, money, gifts, perks and benefit to promote something must be accurately disclosed;
- information provided must be true, fair, clear and not misleading;
- risks as well as the rewards must be highlighted;
- do not give personalised recommendations on what to buy, sell, or hold unless licensed and authorised to do so; and
- finfluencers should not communicate in a way which suggests expertise if they lack full understanding of a product.
14. HMT publishes independent review of the Payment and Electronic Money Institution Insolvency Regulations 2021
On 17 December 2025, HMT published the final report of the independent review by Adam Plainer of the Payment and Electronic Money Institution Insolvency Regulation 2021 (the PEMIIR). The purpose of this review was to consider the extent to which the Payment and Electronic Money Special Administration Regime (PESAR) is achieving its intended objectives as set out in the PEMIIR and the Banking Act 2009.
Five key areas emerged as potential priorities for change:
- Objective structure: the PESAR’s three statutory objectives lack a clear hierarchy;
- Court and cost burden: the requirement for court entry and approval of distribution plans is often disproportionate;
- Customer fund return: interim distributions are currently permitted but further guidance could be provided to give insolvency practitioners comfort in how they are able to use this function;
- Scalability and contingency planning: the PESAR has not yet been tested on large providers; and
- Market and legal efficiency: targeted legislative refinements, clearer comfort mechanisms to IPs, and improved creditors' committee functionality are needed to reduce friction and encourage practitioner engagement.
HMT is considering the findings and will set out its response in due course.
15. FCA publishes consultation papers on proposed UK regulatory framework for cryptoasset activities
On 16 December 2025, the FCA published three consultation papers setting out its proposed regulatory framework for cryptoasset activities in the UK. HM Treasury also published the related draft statutory instrument on the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025, which bring new cryptoasset activities within the FCA's regulatory remit.
The consultation papers seek feedback on the following areas:
- Admissions and disclosures: Rules for listing cryptoassets and what firms must tell investors, so people have the facts before they invest.
- Market abuse: Measures to stop insider trading and manipulation, so markets are fair.
- Cryptoasset trading platforms: Standards for exchanges to keep trading safe and reliable.
- Intermediaries: Requirements for brokers and other intermediaries, so they act responsibly.
- Staking: Making sure the risks are clear when firms offer staking.
- Lending and borrowing: Rules to protect both crypto lenders and borrowers.
- Decentralised finance (DeFi): DeFi lets people trade, lend and borrow using crypto without an intermediary.
- Prudential requirements: Financial safeguards for firms, so they can better manage risk.
The consultations will close on 12 February 2026. The FCA intends to publish policy statements setting out final rules in 2026, with further consultation planned in Q1 2026 on the Consumer Duty, COBS requirements, and access to the Financial Ombudsman Service for cryptoasset firms.
16. Government announces cryptoasset regulatory regime from 2027
On 15 December 2025, HMT announced that cryptoasset firms will be brought within the regulatory perimeter from 2027. The new regime will require cryptoasset firms to be authorised and supervised by the FCA, applying similar rules to those governing other regulated financial products, including established transparency standards. The government stated that the regime is designed to support responsible innovation, ensure open and competitive markets, and promote the UK as a destination of choice for digital asset businesses.
The government stated that bringing cryptoasset firms into regulation will enhance transparency and oversight across the sector, making it easier to detect suspicious activity, enforce sanctions and hold firms to account where they fall short.
This announcement forms part of the government's ongoing work in partnership with the United States to foster innovation and growth in cryptoassets through the Transatlantic Taskforce. Going forward, the regime will come into force from 2027, establishing comprehensive regulatory requirements for cryptoasset firms and furthering the UK's ambition to be a world-leading hub for digital finance.
17. FCA and PSR update HMT on payments regulation
On 16 December 2025, HMT published the joint letter from the FCA and Payment Systems Regulator (PSR) addressed to the Chancellor of the Exchequer dated 11 November 2025. The letter provides a progress update on the recommendations for payments regulation outlined by HMT on 14 November 2024.
The FCA and PSR noted their increasing collaboration, and that they have worked together to:
- enhance coordination to address congestion in the regulatory landscape;
- support the development of open banking;
- ensure high standards of consumer protection and support efficient, safe payments (for example, through fighting financial crime or introducing authorised push payment fraud reimbursement requirements); and
- drive an agile approach to delivering the UK's retail payments infrastructure needs.
The FCA noted its continued consideration of HMTs recommendations, and that it will continue to support the UK's growth mission.
18. FCA and PSR update on commercial variable recurring payments
On 16 December 2025, the FCA and PSR published an update on the delivery of commercial Variable Recurring Payments (VRPs) in the UK open banking ecosystem.
VRPs are an open banking technology allowing users to securely authorise trusted third parties to manage recurring transactions). In 2025, 31 firms from across the ecosystem came together to establish a new organisation, UK Payments Initiative (UKPI), to help expand VRPs into a series of "phase 1" use cases for utility payments, financial services, and payments to local and central government.
First live payments under the UKPI scheme are expected in Q1 2026. HM Treasury is expected to set legislation in 2026 that will grant the FCA new powers to set open banking rules, and the FCA intends to consult on new rules before the end of 2026.
19. FCA sets out new UK regime for cryptoasset regulation
On 8 January 2026, the FCA published an update on the UK’s new regime for regulating cryptoassets and how firms should prepare. It explains the path to bringing cryptoassets within the FCA’s remit, following HMT's October 2023 proposals to create new regulated activities and the Government laying the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025 before Parliament in December 2025.
The regime will create new cryptoasset regulated activities under FSMA, meaning that firms within the scope must be authorised and supervised by the FCA. The FCA also shared its crypto roadmap, setting out the indicative, high-level timeline for the design and implementation of the new regime to assist firms with their planning.
The new regime is expected to commence on 25 October 2027 and firms will need appropriate FSMA permissions at that point. Over the coming months, the FCA will continue to publish further policy consultations setting out its proposed rules and guidance.
ESG
20. HM Treasury publishes Statutory Instrument on ESG ratings activity
On 15 December 2025, HM Treasury published the Financial Services and Markets Act 2000 (Regulated Activities) (ESG Ratings) Order 2025. HM Treasury also published the explanatory memorandum. The FCA also published accompanying
The new rules will bring the provision of an Environmental, Social, or Governance (ESG) rating into regulation under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). This makes ESG rating, when that rating is likely to influence a decision to make an investment, a specified kind of activity and will therefore require providers of an ESG rating to be authorised and supervised by the FCA.
The order came into force on 16 December 2025, while FCA authorisation will be required from 29 June 2028.
Other
No updates.
