Financial Services SpeedRead: 17 July 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 consultation paper on the systematic internaliser regime for bonds and derivatives

On 4 July 2025, the FCA published a consultation paper (CP25/20) on the systematic internaliser (SI) regime for bonds and derivatives as well as on other changes that aim to improve the functioning of UK markets.

The consultation follows the removal of pre-trade transparency from SI's obligations in relation to bonds and derivatives in PS24/14, to allow the FCA to give effect to new SI rules in Q4 2025, ensuring alignment between the transparency and the SI regimes.

The FCA is also consulting on (i) the removal of the prohibition on matched principal trading by firms operating a multilateral trading facility; (ii) changes to reference price waiver rules to allow trading venues greater flexibility; and (iii) the removal of the prohibition on an investment firm that is an SI from operating an organised trading facility.

The consultation is particularly relevant to SIs in all asset classes, trading venues, UK branches of overseas firms undertaking investment services and activities and investment firms.

The consultation is open until 10 September 2025. The FCA will finalise the proposed changes in a policy statement which is due to be published in Q4 2025.

2. FCA publishes consultation paper on ancillary activities test

On 3 July 2025, the FCA published a consultation paper on the ancillary activities test (AAT) (CP25/19), proposing significant changes to the AAT for firms trading commodity derivatives. Alongside this, HM Treasury published a draft statutory instrument to amend the UK's ancillary activities exemption (AAE) regime.

The FCA’s proposals aim to simplify the current AAT framework, which determines whether non-financial firms trading commodity derivatives require authorisation as investment firms. Key changes include the introduction of three independent tests: a new annual threshold (de minimis) test which will replace the current market share test, a revised trading test, and a revised capital employed test. Firms will be able to rely on any one of these tests to benefit from the exemption, with the main objectives of the changes being to simplify the existing regime, reduce compliance costs for firms and align the UK regime more closely with international standards.

The FCA is seeking industry feedback on the proposed rules by 28 August 2025. Following the consultation, the FCA intends to publish a policy statement with finalised rules in late 2025 or early 2026. The new regime is expected to come into force from 1 January 2027.

3. ESMA publishes press release regarding CSA on the use of pre-trade controls

On 2 July 2025, ESMA published a press release setting out the outcome of a common supervisory action (CSA) conducted with national competent authorities on the use of pre-trade controls (PTCs) under MiFID II. The CSA initially launched in January 2024.

The CSA aimed to assess how investment firms across the EU integrate PTCs into their trading activities and risk management frameworks.

The findings show that most firms have embedded PTCs into their trading and risk frameworks. However, ESMA noted divergence between firms.

ESMA will analyse results further and publish guidance in the coming months, with the aim of promoting harmonised implementation and governance across the EU of pre-trade controls.

Banking and Prudential

4. EBA publishes consultation papers on new framework for third-country branches under CRD VI Directive

On 10 July 2025, the EBA published two consultation papers on the new framework for third-country branches (TCBs) under the CRD VI Directive (see here and here).

1. Draft RTS specifying booking arrangements

The first consultation paper sets out a draft RTS detailing the booking arrangements that TCBs must apply under the new regime, for the purposes of Article 48h of CRD VI. The RTS specifies the methodology for identifying and recording assets, liabilities, and off-balance sheet items, as well as the minimum content required in registry books and the associated risk information. The standards are designed to harmonise booking practices across Member States.

2. Draft guidelines on instruments available for TCBs for unrestricted and immediate use to cover risks or losses

The second consultation paper sets out draft guidelines which are intended to clarify the types of financial instruments that TCBs may use to meet the new minimum capital endowment requirement introduced by Article 48e of CRD VI. The capital endowment requirement is designed to ensure that TCBs always maintain a segregated pool of assets that can be used to protect local depositors and creditors in the event of the branch’s resolution or winding-up. These assets must be held in an escrow account and be available for immediate and unrestricted use.

The deadline for responses to the EBA is 13 October 2025, with the guidelines to apply from January 2027.

5. EBA publishes consultation paper regarding amendments to Regulatory Technical Standards on own funds and eligible liabilities under CRR

On 9 July 2025, the EBA published a consultation paper containing draft regulatory technical standards (RTS) amending Commission Delegated Regulation (EU) 241/2014 on the timing for the application for prior permission to reduce own funds and eligible liabilities under Article 78A of the Capital Requirements Regulation (CRR).

The key change proposed is a reduction in the maximum timeframe for competent and resolution authorities to process applications for reducing these instruments, from four months to three months.

Additionally, the draft RTS set simplified requirements for institutions where the resolution authority has set the minimum requirement for own funds and eligible liabilities at a level that does not exceed the loss absorption amount.

The consultation closes on 9 October 2025. The EBA then intends to submit the final draft RTS to the EU Commission for adoption.

6. EBA publishes draft guidelines on identifying ancillary services undertakings

On 7 July 2025, the EBA published a consultation on draft guidelines specifying the criteria to identify ancillary services undertakings (ASUs) under Article 4(1)(18) of the Capital Requirements Regulation (CRR). The aim is to ensure consistent qualification of ASUs, and therefore the consistent application of the prudential framework, across Member States.

The draft guidelines set out criteria for three categories of activities:

• Direct extension of banking: activities that are a fundamental part of the value chain of core banking services (e.g. loan servicing, creditworthiness assessment, debt recovery), other (new) forms of lending (e.g. crowdfunding, peer-to-peer lending), and maturity/liquidity transformation or leverage/credit risk transfer by shadow banking entities.
• Ancillary to banking: activities such as operational leasing, property management or data processing, assessed on the basis of whether they support, complement or rely on banking. Only undertakings with a material connection to a banking group fall within scope.
• Activities similar to those under the CRR: a case-by-case process allows authorities to propose activities not directly covered, enabling flexibility to capture new risks and evolving business models.

An ASU is defined as an undertaking whose principal activity consists of one or more of the above, assessed against thresholds (50% of assets, revenue, or personnel) or other indicators where appropriate.

The consultation closes on 7 October 2025. The EBA will hold a public virtual hearing on 2 September 2025. The date from which the guidelines will apply is yet to be confirmed.

7. PRA publishes policy statement on updates to the UK policy framework for capital buffers

On 3 July 2025, the PRA published a policy statement (PS8/25) relating to amendments to UK framework on capital buffer requirements (CBR). The policy statement finalises a series of regulatory changes aimed at streamlining and clarifying the UK’s capital buffers regime.

The PRA consulted on the changes on 12 September 2024 in CP10/24. See our Financial Services SpeedRead entry here for further details. Given the PRA received only one response, which was in support of these proposals, it has adopted them in full.

Alongside PS8/25 the PRA has published:

• statements of policy setting out (i) its approach to identifying G-SIIs and setting G-SII buffers; (ii) its approach to identifying O-SIIs; and (iii) its approach to implementing the O-SII buffer;
• a PRA Standards Instrument which revokes the UK technical standards on the methodology for identifying G-SIIs;
• amendments to reporting instructions relating to identifying and assigning G-SII buffer rates; and
• consequential amendments to the PRA rules relating to identifying and assigning G-SII buffer rates.

The updated CBR and the policy material set out in PS8/25 come into effect on 31 July 2025.

8. EBA publishes consultation paper on draft guidelines for credit conversion factor estimation under CRR

On 2 July 2025, the EBA published a consultation paper on draft guidelines on credit conversion factor (CCF) estimation under Article 182(5) of the CRR.

The exposure value for off-balance sheet items is calculated by multiplying the notional value by a CCF. Under the Internal Ratings Based Approach (IRB), the CCF can be modelled subject to the approval of the competent authority. Following the CRR 3 amendments to the CRR, the EBA is mandated under Article 182(5) to issue guidelines specifying the methodology that institutions should apply to estimate IRB-CCF.

The consultation period will be open for three months, and comments should be submitted by 15 October 2025.

9. EBA publishes consultation paper on updated guidelines for the application of the definition of default under CRR

On 2 July 2025, the EBA published a consultation paper with draft guidelines that will update the existing guidelines on the application of the definition of default pursuant to a revised mandate under Article 178 of the CRR.

Specifically, the consultation paper contains proposals to maintain the 1% threshold for the net present value loss in debt restructuring. It also proposes increasing the exceptional treatment of days past due at the invoice level from 30 days to 90 days. Other proposals are discussed in the consultation paper, including the possibility of shortening the probation period for certain forborne exposures and the possibility of introducing specific criteria for the recognition of moratoria, but these were not carried forward into the amended text.

The consultation period will be open for three months, and comments should be submitted by 15 October 2025.

10. European Commission adopts regulatory technical standards specifying the conditions for assessing the materiality of extensions of, and changes to, the use of alternative internal models, and changes to the subset of the modellable risk factors

On 3 July 2025, the European Commission adopted a Delegated Regulation supplementing the CRR with regard to regulatory technical standards (RTS) specifying the conditions for assessing the materiality of extensions of, and changes to, the use of alternative internal models and changes to the subset of the modellable risk factors under Article 325az(8) of the CRR.

The RTS differentiate between material and non-material extensions and changes, with the former requiring approval from competent authorities and the latter needing to be notified to competent authorities four weeks in advance. The latter category is further divided into two sub-categories: those notified with additional information and those notified with basic information.

For the categorisation of model extensions and changes to the relevant categories/sub-categories, the RTS set out a combination of qualitative and quantitative conditions.

The RTS also include guiding principles that institutions should follow in the categorisation process, provisions on the implementation of extensions and changes, and documentation requirements.

This update follows the final report on the draft RTS published by the EBA in June 2024.

Fund Management

No new entries.

Senior Managers and Governance

11. FCA consults on tackling non-financial misconduct in financial services

On 2 July 2025, the FCA published a consultation paper (CP25/18) on its proposed approach to addressing non-financial misconduct (NFM) within financial services firms. This follows its initial consultation on improving diversity and inclusion, which was published in September 2023 (CP23/20). The new consultation focuses on extending and clarifying the application of the FCA’s Code of Conduct sourcebook (COCON) to non-banks, and providing guidance on the Fit and Proper Test for Employees and Senior Personnel sourcebook (FIT). The aim of the proposals is to ensure consistent and robust action against workplace misconduct, including bullying, harassment, and violence.

The consultation will close on 10 September 2025. The FCA will review feedback and publish its final approach before the end of the year, with the new rules and any accompanying guidance to take effect from 1 September 2026.

For more information, please see our full briefing here.

Financial Crime

12. HM Treasury updates Money Laundering Advisory Notice webpage on high risk third countries

On 10 July 2025, HM Treasury published an update to its Money Laundering Advisory Notice webpage to reflect changes to the countries in scope of High Risk Third Countries following updates to the lists of the Financial Action Task Force at its plenary meeting in June 2025.

These updates included removing Croatia, Mali, and the United Republic of Tanzania from the list of high risk third countries, and adding Bolivia and the British Virgin Islands to this list.

13. FCA fines Monzo for failings in financial crime control

On 7 July 2025, the FCA published a final notice to Monzo, confirming a fine of £21,091,300 for its inadequate anti-financial crime systems and controls.

The FCA found that between October 2018 and August 2020, Monzo had failed to design, implement and maintain adequate customer onboarding, customer risk assessment and transaction monitoring systems to mitigate the risk of financial crime. This failure resulted in a comprehensive, independent review of the firm's financial crime framework in August 2020. In addition to this review, the FCA imposed a requirement preventing Monzo from opening new accounts for high-risk customers. Monzo failed to comply with this requirement and signed up over 34,000 high-risk customers between August 2020 and June 2022. As such, Monzo was found to breach the requirements imposed by the FCA, as well as Principle 3 (Management and control) of the FCA's Principles for Businesses more generally for its financial crime failings.

14. Crown Court sentences Redinel Korfuzi and Oerta Korfuzi to combined 11 years for £1m insider dealing and money laundering

On 7 July, the Crown Court sentenced Redinel Korfuzi to six years imprisonment and his sister Oerta Korfuzi to five years imprisonment after they were convicted of insider dealing and money laundering which generated a profit of more than £960,000.

For more information regarding the secured convictions, please see our previous Financial Services SpeedRead entry here.

15. FCA publishes guidance on the treatment of politically exposed persons for AML purposes

On 7 July 2025, the FCA published finalised guidance (FG25/3) on how firms should treat politically exposed persons (PEPs), their family members, and close associates for the purpose of complying with the UK's anti-money laundering (AML) regime. This follows the FCA's consultation on amending the PEP guidance (GC24/4) – please see our previous Financial Services Speedread here), and updates the July 2017 version of the PEP guidance (FG17/6).

The guidance:

• clarifies that non-executive board members should not be treated as PEPs, and instead only individuals holding truly prominent public functions, in the UK or abroad, should be treated as PEPs;
• makes minor amendments to the PEP definition, including by adding a link to a government list of international organisations;
• revises the guidance to clarify that senior management approval for PEP relationships can be delegated to suitably senior staff, and the money laundering reporting officers must oversee, but not sign off, each case; and
• clarifies that firms should take a risk-based approach to applying the PEP definition under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 in a UK context. Domestic PEPs, their family, and close associates are generally considered lower risk unless other factors apply.

Firms should consider these changes and ensure AML obligations are being met in a proportionate, risk-based, and documented manner.

Retail Services

16. FCA consults on targeted support regime for pensions and investments

On 30 June 2025, the FCA published a consultation paper (CP25/17) setting out draft rules for a new "targeted support" and "simplified advice" regime.

For more information on the proposals, see our briefing here.

The FCA is accepting comments on the consultation paper until 29 August 2025, and aims to publish a policy statement by the end of 2025.

Digital Finance and Fintech

17. ECB publishes report on new technologies for wholesale central bank money settlement

On 1 July 2025, the ECB published a report detailing the Eurosystem's exploratory work on new technologies for wholesale central bank money (CeBM) settlement. The initiative assessed how distributed ledger technology (DLT) could support tokenised asset settlement in central bank money.

The ECB engaged with 64 market participants across different sectors and countries, testing three types of interoperability solutions that could connect DLT platforms with existing settlement infrastructure, including real-time gross settlement systems and central bank digital currency prototypes. The trials demonstrated that tokenised settlement in CeBM is technically feasible, with all three models achieving atomic settlement (delivery-versus-payment).

The ECB concluded that it appears a move to DLT and tokenisation could help to overcome fragmentation, complexity and technological inefficiencies seen in the market today. The Eurosystem has committed to proceeding with the short-term offering, as a good compromise whilst the market evolves.

Payments

No new entries.

ESG

18. EBA publishes consultation paper on the revision of guidelines on product oversight and governance arrangements to address ESG and greenwashing risks

On 9 July 2025, the EBA published a consultation paper (EBA/CP/2025/13) on proposed amendments to its guidelines on product oversight and governance arrangements for retail banking products (the POG guidelines). The amendments were to take into account greenwashing and ESG risk requirements contained in Articles 76 and 87(a)(4) of CRD IV, as amended by CRD VI.

The key proposed amendments to the POG guidelines include:

• requiring manufacturers and distributors of ESG products to establish appropriate POG arrangements that consider the interests, objectives, and characteristics of the target market;
• mandating management bodies to implement processes to identify, monitor, prevent, and manage greenwashing risks;
• explicitly referencing ESG features and target market requirements to ensure manufacturers meet the needs and objectives of their customers;
• setting conditions for sustainability-related communications and claims to align with EBA guidelines on ESG risk management; and
• requiring distributors to ensure sustainability communications are fair, clear, not misleading, and that claims are accurate, substantiated, up to date, and fairly presented.

The consultation is open for feedback until 9 October 2025. Following the consultation period, the EBA intends to finalise and publish the updated guidelines in the first quarter of 2026, with application from 1 December 2026.

19. EU Commission adopts delegated regulation simplifying reporting requirements for environmental disclosures under the EU Taxonomy

On 4 July 2025, the European Commission adopted a Delegated Regulation amending the Disclosures, Climate, and Environmental Delegated Acts under the EU Taxonomy Regulation. The Regulation introduces targeted simplifications to reduce administrative burdens for reporting entities while preserving key disclosures regarding environmentally sustainable activities.

Specifically:

• non-financial undertakings may exclude from Taxonomy assessments any economic activities that amount to less than 10% of turnover, capital expenditure or operational expenditure (OpEx). In addition, such undertakings will be exempt from assessing taxonomy alignment for their entire OpEx if it is not material to their business model;
• financial undertakings may also exclude from Taxonomy assessments any economic activities that are not financially material for their business;
• key performance indicators and taxonomy reporting templates will be simplified / streamlined; and
• the 'do no significant harm' criteria related to the use and presence of chemicals will also be simplified.

The new rules will apply from 1 January 2026, although undertakings are able to apply the measures from the 2026 financial year onwards.

20. ESMA publishes thematic note on clear, fair & not misleading sustainability-related claims

On 1 July 2025, ESMA published the first in a series of thematic notes designed to help market participants communicate sustainability claims more clearly and responsibly. The aim is to reduce greenwashing risks across the financial sector. This first note focuses on ESG credentials, such as sustainability ratings, labels, awards, or participation in industry initiatives. ESMA will continue to publish thematic notes and intends for the notes to be used as practical guidance, complementing existing EU rules to support market participants in making clear, fair and not misleading sustainability claims.

For more information, please see our full briefing here.

Other

21. BoE fines Vocalink Limited for a compliance failure

On 9 July 2025, the BoE published a final notice fining Vocalink Limited (Vocalink) £11,900,000 for a compliance failure under section 196 of the Banking Act 2009.

Vocalink has been regulated the BoE as a specified service provider since April 2018 and was required by BoE to remediate various identified systems and controls via a direction issued under section 191 following a 2020 review which identified a number of weaknesses.

Vocalink implemented a remediation programme in response to this direction, but fell short of full compliance with the requirements of the direction by the deadline.

The BoE found that the root cause of the non-compliance was a failure to have in place a sufficiently integrated risk management framework for the remediation programme, and also that failures to escalate key risks and information to senior committees undermined Vocalink's ability to comply with the direction.

22. Bank of England and PRA publish letter on thematic findings from 2024 Cyber Stress Test

On 9 July, the Bank of England and PRA published a letter on thematic findings from the 2024 Cyber Stress Test. This was a voluntary, exploratory test which asked providers and users of wholesale services to model the impact of a suspected cyber-attack affecting transaction settlement.

The key findings were as follows:

• while firms have mature scenario modelling, and response and recovery capabilities, most lack a full understanding of the Financial Policy Committee's tolerance for disruption to payments and settlement, and the systemic risks posed by their decisions in response to operational disruption;
• the ability to process high-impact transactions with workarounds, and maintaining clear sector-wide communication during incidents, can help maintain financial stability; and
• firms, and their specific business functions, must understand their options for disconnection from financial market infrastructures (and reconnection), with any decisions being informed and risk-based to reflect any implications on financial stability.

The Bank of England and PRA encouraged firms to consider these findings as part of their implementation of operational resilience policies.

23. EBA launches consultation on updated guidelines for managing third-party risk in critical non-ICT services

On 8 July 2025, the EBA published a consultation paper on its draft guidelines on the sound management of third-party risk (EBA/CP/2025/12).

These draft guidelines are intended to update and revise the EBA’s 2019 Guidelines on outsourcing, aligning them with the requirements of the Digital Operational Resilience Act (DORA). The guidelines focus on third party arrangements (TPAs) relating to non-ICT related services provided by third-party service providers and their subcontractors.

The draft guidelines specify the steps to be taken by firms for the life cycle of TPAs to ensure consistency with the requirements under the DORA framework to the extent possible. The draft guidelines work to ensure consistency with the DORA register by allowing financial institutions to store consistent information for both ICT and non-ICT services, including using one single register.

The consultation period is open until 8 October 2025. Once the guidelines come into effect, firms falling within the scope will have a transitional period of two years to review and amend their existing TPAs and to update the register for non-ICT TPAs.

24. New standards for ICT subcontracting under DORA are published in Official Journal of the EU

On 2 July 2025, the Delegated Regulation supplementing DORA with RTS for sub-contracting ICT services was published in the Official Journal of the European Union. The RTS specifies the elements that a firm must determine and assess when sub-contracting ICT services that support critical or important functions.

For more information on the RTS, please see our previous Financial Services Speedread here, which was published when the RTS was adopted by the European Commission.

The Delegated Regulation will enter into force on 22 July 2025.

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