Financial Services SpeedRead: 18 September 2025 edition
18 September 2025
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 guidelines on authorisation and registration applications
On 11 September 2025, the FCA published guidance highlighting good practice and areas for improvement in the application process for firms seeking authorisation or registration. Overall, the FCA emphasised that firms must: (i) ensure staff have the appropriate skills, experience and capacity to deliver the relevant financial services; (ii) have robust policies in place documenting their processes and procedures; and (iii) have financial resources that are appropriate in light of the nature of scale of their business.
Examples of good practice include:
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identifying any gaps in staff resources and providing plans for recruitment or upskilling;
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using the FCA's sample business plan and financial analysis templates to ensure key information is included; and
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integrating the Consumer Duty throughout all policies and procedures.
Examples of concern for the FCA include:
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solely relying on compliance consultants and not demonstrating an independent understanding of their regulatory obligations;
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failing to demonstrate how individuals with multiple responsibilities will manage their time and roles; and
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overlooking customer considerations (including in relation to vulnerability) when designing systems and controls, and only focusing on risks to the firm rather than to customers.
2. FCA publishes Market Watch 83 focusing on market soundings
On 8 September 2025, the FCA published Market Watch 83 with observations from its review of the systems and controls in place for corporate finance firms when handling inside information.
Key observations include the following:
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firms should consider whether their policies help effectively manage the number of market sounding recipients (MSRs) to control the flow of inside information. The FCA mentioned that good governance practice would involve having a committee responsible for approving the initial proposed list of MSRs;
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disclosing market participants (DMPs) and MSRs should consider and address the risk of unlawfully disclosing inside information to individuals that the gatekeeper (if applicable) has not yet wall-crossed;
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firms should have policies and procedures in place that (i) make sure the same level of information is shared with every MSR, and (ii) ensure compliance with MAR to the extent one broker involves another broker to market sound its contacts without the knowledge of the issuer; and
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firms should consider if they have arrangements that are appropriate to their size. Smaller firms are more susceptible to organisational and cultural factors that can present compliance risks, such as relying on unwritten and informal policies and procedures that are mistakenly considered to be proportionate to their size.
Finally, the FCA observed ongoing breaches of personal account dealing policies, stating that such breaches are unacceptable. The FCA stresses that clear policies and procedures along with a strong culture of compliance are key to reduce conflicts of interest, prevent market abuse and ultimately maintain market integrity.
Banking and Prudential
3. FCA publishes IFPR Newsletter with key regulatory updates for investment firms
On 1 September 2025, the FCA published an IFPR Newsletter providing key regulatory updates for investment firms under the Investment Firm Prudential Regime (IFPR). These include the following:
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firms are reminded of the requirement to notify the FCA as soon as they become aware of the creation of (or any changes to) an investment firm group (using the MIFIDPRU 2 Annex 8R form). The newsletter highlights the need to ensure FCA data on investment firm groups is accurate;
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the FCA noted it has seen instances where MIFIDPRU firms set up as limited liability partnerships (LLPs) may be incorrectly treating allocated profits as a Common Equity Tier 1 (CET1) item for the purpose of meeting their own funds requirements. For LLPs, where the partnership has an unconditional right to refuse to make profits available to partners, such profits may qualify as CET1 capital. If, on the other hand, the LLP agreement provides for automatic allocation of profits to members, or where members have immediate and unconditional rights to withdraw allocated profits, these amounts cannot qualify as CET1 capital as they are effectively liabilities;
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the FCA noted that some firms (and their advisers) may be unsure as to the monthly values to include in the calculation of the assets under management K-factor. It provides an example to clarify the intended operation of the FCA's rules on this point;
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the FCA identified common reporting errors (in the Own Funds Threshold Requirement and Liquid Assets Threshold Requirement). It also reminded firms of the requirement to ensure that the time period between (i) completion of the Internal Capital Adequacy and Risk Assessment (ICARA) and (ii) its approval by the governing body, is reasonable; and
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the FCA noted that, according to Companies House data, one in 10 MiFID firms have incorrectly claimed the small companies exemption for accounts submissions. For the most part, the firms satisfied the size-based criteria for a small companies exemption but were excluded from the regime on the basis that they meet the definition of a MiFID investment firm under the Companies Act. The FCA reminded senior managers to review their permissions and reporting practices to ensure compliance with relevant standards.
4. EBA publishes draft RTS on off-balance sheet items conversion factors under CRR
On 18 August 2025, the EBA published the final report on draft regulatory technical standards (RTS) on the allocation of off-balance sheet items and unconditionally cancellable commitment (UCC) considerations under Article 111(8) of the EU CRR (EBA/ RTS/2025/06).
Article 111 of the EU CRR specifies the determination of exposure values under the Standardised Approach for credit risk, including the specification for off-balance sheet items. Exposure values are derived from nominal values and the application of certain percentages. For off-balance sheet items, the applicable percentages are determined by mapping the item to one of five buckets specified in Annex I of the EU CRR.
The EBA is mandated to develop RTS that specify, inter alia:
- the criteria that institutions must use to assign off-balance sheet items to the relevant buckets;
- the factors that might constrain institutions' ability to cancel UCCs; and
- the process for notifying the EBA about institutions' classification of other off-balance sheet items carrying similar risks to those referred to in Annex I of the EU CRR.
The assignment criteria will refer to a simple set of risk characteristics of the off-balance sheet items. The main elements of differentiation are: (a) financial covenants; (b) whether a non-credit-related event must occur before the institution may become exposed to the risk of credit losses; and (c) the optionality for an obligor to draw or not draw the off-balance sheet item.
Four factors must be considered as constraining institutions’ ability to cancel an UCC that relate to risk management processes, commercial considerations as well as to reputational and litigation risks.
The notification process of off-balance sheet-items not already included in Annex I will be implemented via the COREP framework.
This final report follows on from the EBA's consultation in March 2024.
Fund Management
No new entries.
Senior Managers and Governance
No new entries.
Financial Crime
No new entries.
Retail Services
5. FCA gives oral evidence to Treasury Select Committee on FCA motor finance
On 9 September 2025, the Treasury Select Committee published a transcript of its oral evidence session with the FCA on their response to consumer harm in the motor finance sector, following the Supreme Court ruling on unfair lending practices and inadequate commission disclosure (please see our previous Financial Services Speedread here).
The FCA is preparing to consult on a redress scheme covering agreements from 2007 to 2020, potentially affecting millions of consumers. The scheme aims to compensate those who were misled or overcharged due to undisclosed or excessive commissions, with average compensation expected to be in the hundreds of pounds. The FCA defended its approach to motor finance redress, emphasising that the issue was a clear breach of existing rules requiring proactive information sharing, rather than a matter of retrospective regulation, and that the introduction of the Consumer Duty would help prevent similar issues in the future.
The FCA maintained that only customers who had suffered actual harm needed to complain. The FCA also emphasised that consumers do not need to use claims management companies, as the scheme will be free and straightforward.
The consultation will address operational details, including opt-in/opt-out models and timelines, with compensation likely to begin in 2026.
Digital Finance and Fintech
6. EU Commission publishes RTS related to market abuse under MiCA
On 20 August 2025, the EU Commission published Commission Delegated Regulation (EU) 2025/885 in the Official Journal of the European Union, supplementing MiCAR with Regulatory Technical Standards (RTS) relating to market abuse.
The RTS aim to supplement the existing EU framework and introduce obligations for preventing, monitoring and detecting market abuse through transactions involving cryptoassets. The RTS also introduce reporting obligations and templates in respect of suspected market abuse where MiCAR applies.
The Delegated Regulation will enter into force on 9 September 2025.
Payments
7. HM Treasury publishes consultation paper on streamlining payment systems regulation
On 9 September 2025, HM Treasury published a consultation paper on its approach to streamlining the regulation of payment systems, including a proposal to abolish the Payment Systems Regulator (PSR) and transfer the PSR's current functions to the FCA.
Key proposals include (among others):
- transferring all PSR responsibilities to the FCA within the current FSMA 2000 framework as far as possible. Where this is not practicable, the Government expects that the functions will be set out in a new part of FSMA 2000;
- retaining the current designation regime for payment systems to ensure proportionality, such that regulation is targeted at the largest / most significant payment systems. Accordingly, no new regulated activity will be created as a result of the FCA's proposed streamlined approach; and
- introducing a "have regard" requirement for the FCA (equivalent to that imposed on the PSR) which would require the FCA to consider, in acting in relation to payment systems, to have regard to the importance of maintaining stability and confidence in the UK financial system.
The consultation period closes on 20 October 2025. The Government will then seek to bring forward legislation to implement its final policy, taking into account responses provided.
ESG
8. EU Commission publishes the RTS for external reviewers of green bonds
On 12 September 2025, the European Commission published Commission Delegated Regulation, which supplements Regulation (EU) 2023/2631 on European Green Bonds (the Delegated Regulation).
After 21 June 2026, any company wishing to provide external review services for European Green Bonds must be registered with and supervised by ESMA. The Delegated Regulation therefore seeks to establish detailed regulatory technical standards for the registration, management and supervision of external reviewers who assess green bonds under the European Green Bond standard.
Key provisions include:
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the Delegated Regulation sets out clear criteria to ensure that the senior management and board members of external reviewers are of sufficiently good repute and possess sufficient skills, professional qualifications, and relevant experience. This includes mandatory checks on matters including criminal convictions, past misconduct and professional integrity;
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external reviewers are required to employ a sufficient number of analysts and staff directly involved in assessment activities. The knowledge, experience and training of these individuals must be appropriate to the scale and nature of the reviews being conducted; and
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the Delegated Regulation mandates that external reviewers maintain robust corporate governance arrangements, transparent and effective organisational structures, and appropriate internal controls.
The Delegated Regulation will be published in the Official Journal of the EU and enter into force if the European Parliament or the Council of the EU do not object to it.
Other
9. FCA publishes quarterly consultation paper No. 49
On 10 September 2025, the FCA published its quarterly consultation paper No. 49 (CP25/24), proposing various amendments to the FCA Handbook as a result of regulatory change.
Key proposals include amendments to (among other things):
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the penalty policy in the Decision Procedure and Penalties manual, to encompass the new Private Intermittent Securities and Capital Exchange System (PISCES) (see our SpeedRead entry on PISCES here);
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the reporting frequency for certain sections of the Retail Mediation Activities Return (RMAR) from quarterly or half-yearly to annual, as part of the FCA's 'data decommissioning' workstream (see our SpeedRead entry on data decommissioning here);
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the ESG sourcebook, to provide flexibility to firms in publication of product-level sustainability reports;
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the Perimeter Guidance manual (PERG), as a result of the restatement of MiFID Org requirements in the FCA rules; and
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implement the Berne Financial Services Agreement to facilitate UK-Switzerland cross-border financial services (see our Speadread entry on the Berne Financial Services Agreement here, and briefing here).
The consultation is open for feedback until 15 October 2025, after which the FCA will review responses and publish final rules and guidance.
10. ESMA publishes its second report on key trends, risks, and vulnerabilities in EU markets
On 9 September 2025, ESMA published its risk monitor report on trends, risks and vulnerabilities in EU markets. The report identifies that markets in ESMA's remit experienced high market volatility in H1 2025, with sharp equity drawdowns and credit spread spikes followed by swift rebounds in valuations amid sustained high volatility.
Key risk drivers include geopolitical fragmentation, macroeconomic uncertainty (particularly in the context of new tariffs) and rising operational risks from cyber and hybrid threats. The report also notes that delays to green transition efforts could raise financial stability and investor protection risks, and identifies the risk of behavioural biases for investors with limited financial knowledge or resources. The report notes that retail and institutional investors should remain vigilant against potential sharp market corrections and liquidity shortages.
11. FCA publishes feedback received on AI Live Testing initiative
On 9 September 2025, the FCA published feedback received on the Engagement Paper proposing AI Live Testing. This programme enables firms to collaborate with the FCA to develop, assess, and deploy AI systems in live environments, aiming to increase transparency, trust and regulatory clarity around AI use in financial services.
Key benefits and opportunities identified in the feedback included real-world testing, overcoming proof-of-concept barriers, and fostering collaboration between industry and regulator. Major challenges raised were the complexity and explainability of AI systems, data quality and bias, governance, and the need for robust risk management and scenario testing. Respondents called for clearer regulatory guidance, standardised benchmarks, and international alignment. There was also support for a ‘safe harbour’ to encourage open disclosure of testing results.
Next steps involve selecting the first cohort of firms (the application window having closed on 15 September 2025) and the programme starting in October. The FCA will publish an evaluation report after 12 months, and findings may inform other areas of the FCA's work, such as its international engagement, and feed into its publications.
12. HM Treasury publishes policy statement on the appointed representative regime
On 11 August 2025, HM Treasury published a policy statement outlining the Government's approach to targeted reforms of the Appointed Representatives (AR) regime.
The policy statement confirms that the Government intends to maintain the current scope of the AR regime, recognising its role in supporting competition and innovation in UK financial services. However, in response to concerns about consumer protection and oversight, two key legislative reforms are proposed:
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FCA permission to act as principal: Authorised firms wishing to appoint ARs will be required to obtain specific permission from the FCA before doing so. The FCA will have the ability to impose limitations or conditions on these permissions, and the Government is working with the FCA to ensure the new requirements do not disrupt existing business arrangements; and
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Extension of FOS jurisdiction to ARs: The FOS will be empowered to investigate complaints directly against ARs in cases where the principal firm is not responsible for the issue in dispute.
The Government will consult on the detailed implementation of these reforms in due course.
13. Court appearance for three 'finfluencers' charged with illegal promotions
On 10 September 2025, the FCA published a press release reporting on three individuals – Charles Hunter, Kayan Kalipha and Luke Desmaris – who appeared in court charged with unauthorised promotion of high-risk forex trading products (CFDs) via social media. This action is part of a global FCA-led enforcement effort targeting illegal financial promotions by finfluencers, involving nine regulators across six countries.
The defendants pleaded not guilty, with a further hearing set for 8 October 2025. If convicted, penalties include a fine and/or up to two years' imprisonment.
Authors: Tiegan Cormie, Junior Associate; Roni Fass, Junior Associate and Anjali Naik, Legal Apprentice.
