Financial Services SpeedRead: 18 December 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 response on targeted support

On 11 December 2025, the FCA published its response to the consultation on the proposed targeted support regime. This response follows the FCA's consultation on proposals for targeted support (CP25/17). Concurrently, HM Treasury published a consultation response in relation to its draft statutory instrument published in July. The FCA also published two joint statements with the Financial Ombudsman and ICO respectively.

Appointed representatives will not be permitted to deliver targeted support at roll-out, though this position will be reviewed following reforms to the appointed representatives regime.

On 11 December 2025, the FCA also updated its Advice Guidance Boundary Review page confirming plans to consult on simplifying and consolidating investment advice rules in early 2026.

The FCA expects the authorisation gateway for targeted support to open from March 2026, and the rules to take effect from 5 April 2026.

2. FCA publishes public consultation on client categorisation

On 8 December 2025, the FCA published a consultation paper asking for feedback on the proposed amendments to the rules on client categorisation and conflicts of interest, including simplifying SYSC 10 and SYSC 3.

The consultation proposes changes to:

• remove the current COBS 3.5.3R(2) 'quantitative test';
• enhance the qualitative assessment that firms carry out on clients;
• introduce an alternative wealth assessment, where firms will be able to categorise individuals with investable assets of at least £10 million as elective professional clients (subject to the client's informed consent); and
• improve safeguards for clients opting-out of retail protections.

The consultation will close on 2 February 2026.

3. HMT publishes policy update on provisional licences authorisation regime

On 4 December 2025, HMT published a policy update on creating a provisional licences authorisation regime for financial services firms. The regime, which follows a commitment made in the government's March 2025 Regulation Action Plan, is designed to enable early-stage and innovative firms to undertake limited regulated activities under time-limited permissions whilst working towards full authorisation by the FCA. The proposal responds to feedback from Nikhil Rathi, the CEO of the FCA, that some innovative start-ups face challenges meeting all threshold conditions for authorisation immediately.

Under the proposed regime, eligible firms (those not yet authorised and seeking permissions for activities already within the FCA's perimeter) would apply for provisional licences with modified and proportionate expectations. The FCA would assess whether firms can meet threshold conditions for the provisional licence period only (up to 18 months, with limited extensions available), rather than on an ongoing basis as required for full authorisation. Firms would operate under restrictions on business volume or value and be subject to enhanced FCA monitoring.

The regime would not be available to PRA-regulated firms or for products delivered over long or deferred timeframes where consumer harms may not emerge until after the licence expires. Firms unable to secure full authorisation by the end of the provisional licence period would be required to wind down any live products and cease undertaking regulated activities.

The government confirmed that primary legislation will be required to establish the regime and will be brought forward when parliamentary time allows. The FCA will also engage with industry on the detailed design of the regime and consult as necessary.

4. FCA publishes policy statement on changes to handling rules for motor finance complaints

On 3 December 2025, the FCA published a policy statement on changes to handling rules for motor finance complaints. The FCA also published a letter to Chief Executive Officers (Dear CEO Letter) outlining its expectations for firms. The publications follow the consultation paper and Dear CEO Letter published in October 2025.

The FCA confirmed that:

• from 5 December 2025, firms must issue final responses to complaints concerning leasing agreements, as such agreements are excluded from any potential consumer redress scheme. For all other motor finance complaints, the FCA is extending the time firms have to send a final response;
• the FCA will end the temporary complaint‑handling extension on 31 May 2026 (earlier than the 31 July 2026 date initially consulted on). If a consumer redress scheme proceeds, the FCA intends to align timelines where possible, but the 31 May 2026 deadline will not be brought forward; and
• for final responses sent on or after 29 January 2026, the standard 6‑month window for customers to refer complaints to the Financial Ombudsman Service will apply.

The consultation on the potential consumer redress scheme will close on 12 December 2025, with a decision on implementation by end‑March 2026.

5. ESMA to launch Common Supervisory Action on MiFID II conflicts of interest requirements

On 2 December 2025, the European Securities and Markets Authority (ESMA) announced that it will launch a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on conflicts of interest in the distribution of financial instruments. The CSA will assess how firms comply with their obligations under MiFID II to identify, prevent and manage conflicts of interest when offering investment products to retail clients.

The CSA will focus on three key areas:

• the possible impact of staff remuneration and inducements on what products are offered to investors;
• the role of digital platforms in directing investors towards certain products, and whether this serves their best interests; and
• the ways firms manage potential conflicts between their own profits and the needs of retail investors.

ESMA stated that it expects this initiative, together with the exchange of practices among NCAs, will contribute to the consistent application of EU rules and strengthen investor protection in line with its objectives.

ESMA and the NCAs will carry out the CSA during 2026.

6. BoE publishes consultation on exempting post-trade risk reduction transactions from the clearing obligation

On 11 December 2025, the BoE published a consultation paper setting out a proposal to exempt transactions carried out as part of a post-trade risk reduction (PTRR) service from the derivatives clearing obligation as set out in Article 4 of the UK European Market Infrastructure Regulation.

The consultation paper proposals include:

• Exemption for PTRR transactions: an exemption for PTRR transactions from the derivatives clearing obligation, subject to various conditions including that the transaction must be carried out as part of an eligible agreement;
• Definition of PTRR services: a definition of a PTRR service as a service provided to two or more counterparties to derivatives transactions:
  • for the purpose of reducing non-market risks in derivatives portfolios; and
  • that does not give rise to any transactions contributing to the price discovery process;

• Eligible agreement and governance conditions: a requirement that, to meet the definition of an eligible agreement between a PTRR provider and a market participant, an agreement must specify when a PTRR service becomes binding and include supporting legal documentation. The BoE also proposed that the PTRR provider must take certain steps regarding the risk tolerance of each participant and provide certain information about how the PTRR exercise will work before the agreement comes into force; and
• Supervisory notifications: notification requirements for PTRR providers, including that PTRR providers should notify the Bank of their intention to provide PTRR services for the first time and details of each type of eligible PTRR service it intends to provide.

The BoE proposed that the changes come into force three months after the publication of final rules.

The consultation closes on 11 March 2026.

Banking and Prudential

7. EU Commission publishes draft act on disclosure and transparency on payment for research and execution services

On 4 December 2025, the EU Commission published a draft delegated directive amending the MiFID Delegated Directive as regards conditions for provision of third-party execution and research services.

The draft act follows the publication of the EU Listing Act (Directive (EU) 2024/2811), which allowed investment firms to pay for research and execution services either jointly or separately. This draft act would require firms to inform their clients about the way they pay for research and execution services, also setting out the transparency requirements associated with this choice.

The Directive would enter into force 20 days after publication in the Official Journal. Member States would need to transpose the act by 5 June 2026 and apply its provisions from 6 June 2026.

The draft act is open for feedback until 1 January 2026.

8. PRA publishes policy statement on climate risk management

On 3 December 2025, the PRA published policy statement PS25/25, replacing supervisory statement SS3/19 with SS5/25 on climate-related financial risk management for banks and insurers (Firms). The updated expectations clarify governance, risk management frameworks, climate scenario analysis, data quality, and disclosures, whilst maintaining a proportionate, principles-based approach.

Key changes to the supervisory statement include:

• Recognition of litigation risk: given the evolving nature of climate-related litigation risk, Firms can apply judgement to categorise it in the way that best reflects their business and risk profile, and that in some cases this may include defining litigation risk as a distinct transmission channel;
• Climate scenario analysis (CSA): the number and type of CSA exercises should be commensurate with the Firm’s climate risk exposure, and Firms can choose whether to use reverse stress and/or scenario-based sensitivity analysis and that analysis over longer-time horizons can rely more on narrative scenarios and less on precise quantification; and
• Governance and risk: Firms may integrate climate-related responsibilities within existing governance frameworks rather than establishing new ones, if risk identification remains robust. Accordingly, Firms may integrate climate-related risks into existing risk registers or use supplementary sub-registers, if that approach supports robust risk identification.

Firms must conduct an internal review within six months to assess their current status against the expectations and develop action plans to address any gaps identified. Supervisors will not request evidence of these reviews or plans until after the six-month period has ended.

Senior Managers and Governance

9. FCA publishes policy statement on tackling non financial misconduct in financial service

On 12 December 2025, the FCA published policy statement PS25/23 setting out its final guidance on tackling non-financial misconduct (NFM) in financial services. The guidance is designed to help firms make fair, consistent decisions and take decisive action when conduct rules are breached.

Following feedback to consultation paper CP25/18, the FCA has made several changes to the COCON and FIT guidance proposed, including:

• new examples and flow diagrams to help apply COCON consistently;
• clearer alignment with employment law;
• clarifying that managers’ accountability is relative to their knowledge and authority;
• withdrawing or amending examples and factors that risked imposing disproportionate burdens; and
• clarifying that firms are not expected to investigate trivial or implausible allegations or breach privacy law when assessing fitness and propriety.

The guidance will come into force on 1 September 2026 at the same time as the new rule at COCON 1.1.7FR on serious misconduct.

Financial Crime

No new entries.

Retail Services

10. FCA publishes guidance on risk warnings for mainstream investments

On 12 December 2025, the FCA published guidelines on its expectations of firms promoting investment products, and common misconceptions about risk warnings.

The guidance provide, among other things:

• merely stating "capital at risk" is often ineffective;
• there is no requirement for mainstream investment promotions to include a separate risk warning – instead, they must provide a balanced view of the benefits and risks, to give consumers a fair description of the product or service;
• promotions must be standalone compliant and there is no requirement to repeat warning on every page of a customer journey;
• the FCA does not mandate on how to provide promotions – firms should order messages however best supports consumer understanding;
• key information must not be downplayed in a way that could mislead customers;
• image advertising, such as branding, does not need information about risks; and
• when communicating comparative information in relation to investments, the comparison must be meaningful and presented in a fair and balanced way.

The FCA noted that it is supporting a review of risk warnings led by the Investment Association, supported by HM Treasury, and that it will continue working with the review to better understand whether any wider reforms are needed.

11. FCA publishes discussion paper on consumer access to investments

On 5 December 2025, the FCA published discussion paper (DP25/3) seeking views on its regulatory framework for consumer access to investments. The paper explores how the regulator can support informed risk-taking by consumers while mitigating harm from inappropriate high-risk investments and scams.

The FCA identified several developments requiring regulatory attention, including:

• digital engagement practices on trading apps that may blur investing and gambling-like behaviours;
• fractional investments and tokenisation creating new ownership structures;
• model portfolio services lacking consistent regulation compared to authorised funds;
• speculative products (such as contracts for difference, leveraged exchange traded products, margin lending, structured capital at risk products, cryptoasset proxies and horizon contracts) posing similar risks but subject to inconsistent regulatory treatment; and
• peer-to-peer lending, where the market has contracted significantly.

The FCA stated it will review its financial promotion and distribution rules in COBS to improve consistency, comparability and effectiveness. The paper also considers whether to replace product-centred regulation of speculative investments with a risk-based, product-agnostic approach.

The FCA also noted concerns about exemptions in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529), particularly thresholds for high net worth and self-certified sophisticated investors that have not been updated since 2001 and have not kept pace with inflation as a result.

The FCA emphasised that the Consumer Duty complements its distribution and financial promotion rules, requiring firms to enable informed decisions while recognising consumers must take responsibility for their actions.

The discussion paper closes for comments on 6 March 2026.

12. FCA publishes a statement on firms working together to manufacture products and services

On 8 December 2025, the FCA published a statement on how the Consumer Duty applies when firms work together to manufacture products or services. This statement does not create new requirements or standards, but is intended to give firms more clarity on the current supervisory expectations.

When the FCA supervises firms in relation to these rules at present, it looks for firms to do the following:

• correctly identify which firms have a role in the manufacture of a product or service that is ultimately offered or provided to retail customers; and
• where more than one firm is involved in manufacturing a product or service, have a written agreement setting out an allocation of responsibilities that reflects the actual role of each firm. In practice, an existing agreement or contract between the firms can fulfil this expectation. The FCA's focus is on the effective and appropriate allocation of responsibilities and they do not expect firms to duplicate effort or oversee each other’s activities.

In the first half of 2026, the FCA will engage with stakeholders about how these rules apply and develop consultation proposals.

13. FCA publishes policy statement (PS25/20) with final rules for Consumer Composite Investments

On 8 December 2025, the FCA published its final rules creating a new Consumer Composite Investments (CCI) disclosure regime to replace the PRIIPs and UCITS disclosure regimes for UK retail investors.

Key requirements from the CCI regime include the following:

• the firm must produce a concise Product Summary with standardised, comparable information on costs, risk and return, past performance and provide machine readable data to distributors;
• the ongoing costs figure (OCF) must be shown as the headline cost in percentage and pounds and pence terms, with one off and explicit transaction costs disclosed separately; and
• the risk disclosure is reframed as risk and return and structured products must use a value at risk equivalent volatility model. The previous risk rating has also been extended from one to seven, to one to ten.

The commencement date of the CCI regime starts from 6 April 2026. From that point, there is an 18-month transition period. Between 6 April 2026 to 7 June 2027, the firm will have the option to produce either the new product summary or the previous PRIIPs KID. The latest go-live date for product summaries will then be 8 June 2027.

Digital Finance and Fintech

14. FCA sets 2026 growth agenda with stablecoin payments as a priority

On 10 December 2025, the FCA published a press release about its ambitious new growth measures for 2026, including supporting UK-issued stablecoins to provide faster and more convenient payments. The FCA also published a letter to the Prime Minister reporting that the vast majority of nearly 50 growth commitments set at the start of the year have been met, with additional initiatives delivered to help firms scale and broaden investment options.

The FCA's plans for 2026 include:

• enabling experimentation with the issuance of stablecoins by opening its regulatory sandbox for safe testing and to support innovative policy development;
• focusing on more efficient supervision, the digitalisation of financial services, increasing small and medium-sized enterprise lending and boosting trade and international competitiveness; and
• deepening US-UK market integration through the Transatlantic Taskforce for Markets of the Future and preparing to enable some early stage firms to conduct regulated business before full authorisation, for when legislation is passed.

The FCA is inviting firms that plan to issue a stablecoin in the UK and wish to test their products in its regulatory sandbox to apply by 18 January 2026.

ESG

15. European Parliament and Council of the European Union publish updates on the simplification of sustainability reporting and due diligence rules

On 9 December 2025, the European Parliament published a press release on the provisional deal to simplify the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D) as part of the Omnibus I simplification package. The Council of the European Union also published a press release on the provisional deal.

Under the provisional agreement:

• companies with more than 1,000 employees and annual turnover higher than €450 million will be required to report on their sustainability;
• only large corporations with more than 5,000 employees and annual turnover higher than over €1.5 billion will be required to carry out due diligence on their adverse impacts; and
• the requirement to adopt climate transition plans and the EU harmonised civil liability regime will be removed.

The EU Commission is also expected to create a digital portal with templates and guidelines to assist businesses.

Under the provisional deal, the CS3D transposition deadline has been postponed to 26 July 2028, with companies required to comply by July 2029. A review clause has been included concerning possible extension of scope for both directives. The provisional agreement must now be endorsed by the Council of the European Union and European Parliament before formal adoption.

Other

16. FCA consults on enhanced fund liquidity risk management

On 9 December 2025, the Financial Conduct Authority published a consultation paper (CP25/29) proposing enhanced liquidity risk management practices for open-ended funds. The consultation implements revised recommendations from the International Organization of Securities Commissions (IOSCO) published in May 2025.

The proposed new rules and guidance are targeted at authorised fund managers of UCITS and non-UCITS retail schemes. The consultation paper covers effective use of anti-dilution tools, liquidity risk management, and delegation of the portfolio management function.

However, the FCA notes it will consider the application to other alternative investment funds (AIFs) when developing its proposals for the separate consultation paper on reform of the Alternative Investment Fund Managers Directive (AIFMD) regime, scheduled for 2026.

Key proposals flagged for the 2026 consultation include:

• introducing minimum notice periods for some authorised AIFs invested in inherently illiquid assets (such as daily-dealt property funds) to address ongoing liquidity mismatch issues;
• establishing a baseline of liquidity management rules for small AIFMs, requiring at minimum that open-ended funds maintain consistency between their redemption policy and portfolio liquidity; and
• reviewing leverage rules for different types of AIF in light of FSB recommendations on margin and collateral (December 2024) and leverage in non-bank financial intermediation (July 2025).

The consultation closes on 23 February 2026.

17. FCA publishes consultation paper on clarifications of Handbook rules

On 9 December 2025, the FCA published a consultation paper (CP25/37) proposing targeted clarifications and reforms to the FCA Handbook rules across various sectors, including investment schemes, client asset management, insurance, and funeral plans.

The consultation paper forms part of the FCA's Consumer Duty Requirements Review, following its July 2024 call for input on conduct rules and March 2025 feedback statement (FS25/2).

The FCA's proposed changes to its Handbook include:

• Chapter 4 (CASS): amending record-keeping requirements for certain due diligence relationships; updating rules on the frequency of and sources used for external custody reconciliations; and clarifying the rules on the treatment of bank interest earned on client money, and on how the Consumer Duty applies to certain CASS rules; and
• Chapter 7 (clarifying references to Principles 6 and 7): amending references to Principles 6 and 7, to reflect that new standards expected under the Consumer Duty may be higher than those under Principles 6 and 7; and amending references to 'treating customers fairly'.

The consultation closes on 27 January 2026. The FCA anticipates publishing final rules in the second quarter of 2026, with CASS amendments coming into force three months after they are made and all other changes taking effect immediately.