Financial Regulation Weekly Bulletin - 13 March 2025

GENERAL

UK GOVERNMENT

The Digital Markets, Competition and Consumers Act 2024 (Commencement No. 2) Regulations 2025 - 7 March 2025

The Digital Markets, Competition and Consumers Act 2024 (Commencement No. 2) Regulations 2025 (SI 2025/272) (the Regulations) have been published. The Regulations bring into force certain provisions of the Digital Markets, Competition and Consumers Act 2024 on 6 April 2025 and bring further provisions, relating to consumer savings, into force on 1 January 2026.

These are the second commencement Regulations made under the Act.

Evolution of payments landscape - Government announces plans to consolidate PSR into FCA - 12 March 2025 

The UK government has announced its intention to consolidate the Payment Systems Regulator (PSR) and its functions primarily within the FCA. A letter to the Treasury Committee notes that the government “wishes to see a more streamlined regulatory environment which manages the burdens on all businesses, with minimal overlap between regulators’ responsibilities” and that this “requires a rethink of existing regulatory structures for payments, so that firms can focus more of their resources on delivering valuable services and innovations that will deliver on the government's central growth mission”.

The announcement will not result in any immediate changes to the PSR’s remit or ongoing programme of work. It will continue to have access to its statutory powers until relevant legislation is passed. The accompanying press release comments that the “entire regulatory landscape will continue to be reviewed and finessed as part of a wider Government effort to kickstart economic growth and make regulators work for the country, rather than block progress”.

The FCA and the PSR have each published statements in relation to the announcement.

FINANCIAL CONDUCT AUTHORITY

Treatment of customers in vulnerable circumstances - FCA publishes findings of multi-firm review - 7 March 2025

The FCA has published the findings of its multi-firm review of the treatment of customers in vulnerable circumstances, launched in March 2024, as previously reported in this Bulletin. The review considered whether firms’ actions were in line with FCA guidance on the fair treatment of vulnerable customers (FG21/1) and whether that guidance remains appropriate given the introduction of the consumer duty.

The findings highlight several areas requiring improvement from firms, including in relation to outcomes monitoring, the provision of clear communications and embedding consumers' needs into product and service design. The FCA has decided not to update FG21/1, noting that it remains appropriate and helpful alongside the consumer duty. The FCA encourages firms to make use of the practical examples of good practice highlighted by the review.

Consumer support under consumer duty - FCA publishes findings of multi-firm review - 7 March 2025

The FCA has published the findings of its multi-firm review of firms’ approaches to the consumer support outcome of the consumer duty, based on an initial quantitative survey of banks, insurers and consumer finance firms (among others).

Although most firms have considered how the support they provide meets customers’ needs, the FCA has identified several areas requiring improvement. Some firms, for example, did not appear to have aligned their support processes around customers' needs, or lacked a clear understanding of their target market. There were also instances of poor outcomes when consumers accessed support, such as long wait times and inaccessible information. The webpage provides examples of good practice and areas for improvement to help firms understand the FCA’s expectations in this context.

Sustainability regulations and UK defence - FCA publishes statement on its position - 11 March 2025

The FCA has published a statement setting out its position on sustainability regulations and UK defence. In the statement, the FCA notes that its rules, including those relating to sustainability, do not prevent investment in, or finance for, defence companies. The FCA further explains that its sustainable finance rules do not require firms to treat defence companies differently because they are in the defence sector and should not be confused with firms’ own policies relating to the type of businesses they wish to support and their own appetite for risk. 

Applications for senior management functions - FCA publishes new webpages - 12 March 2025

The FCA has published two new webpages relating to applications for approval to perform a senior management function (SMF). The first webpage provides an overview of the application process, covering common reasons why an application may be delayed, the supporting evidence that is needed and what a good application looks like. The second webpage provides further detail on what evidence the FCA expects from firms applying for an SMF in some common scenarios, which includes examples of cases where the FCA might have concerns about an SMF candidate’s fitness and propriety. 

FINANCIAL CONDUCT AUTHORITY AND PRUDENTIAL REGULATION AUTHORITY

Diversity and inclusion proposals - Updates provided by FCA and PRA - 12 March 2025

The FCA and the PRA have each published letters (dated 11 March 2025) addressed to the House of Commons Treasury Committee, noting that they will not be taking their work on diversity and inclusion (D&I) forward. This follows consultations on proposed rules and expectations aimed at improving D&I in firms in September 2023 (FCA CP23/20 and PRA CP18/23).

These decisions reflect the broad range of feedback received, including the Committee's reservations about the reporting aspects of the proposals, as well as expected legislative developments in the area. The PRA's letter refers to the growing emphasis on reducing regulatory burdens on firms, adding that significant new requirements “could be seen as in tension with that approach”. It therefore does not intend to return to the issue until after the substantive implementation of any new legislation in this area. Both the FCA and the PRA will continue to support voluntary industry initiatives relating to D&I. The FCA has confirmed that it will continue to prioritise its work to tackle non-financial misconduct in firms and intends to set out the next steps by the end of June 2025.

The letters also refer to the FCA and PRA review of the impact of removing the bonus cap on gender pay and inequality. Given the time it will take for firms to make changes, this work is likely to occur during the 2026/27 financial year.

FINANCIAL CONDUCT AUTHORITY AND INFORMATION COMMISSIONER'S OFFICE

Supporting AI, innovation and growth in financial services - FCA and ICO to hold roundtable - 10 March 2025

The FCA has published a letter it has sent jointly with the Information Commissioner's Office (ICO) to trade association chairs and CEOs of financial services firms on artificial intelligence (AI), innovation and growth in financial services. In the letter, the FCA and the ICO note that respondents to a recent FCA and Bank of England survey identified data protection and the consumer duty as important regulatory constraints to AI deployment within financial services.

To further develop their understanding of the challenges faced by firms, the FCA and the ICO intend to hold a roundtable with industry leaders on 9 May 2025. Attendees will be invited to discuss areas of regulatory uncertainty, how the ICO and FCA can work together with industry to support growth, and specific areas of data protection and financial regulation in which firms need greater support to enhance their ability to innovate and adopt new technologies. Firms that wish to attend the roundtable are asked to contact the FCA by 21 March 2025.

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SECURITIES AND MARKETS

INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS

AI in capital markets - IOSCO publishes consultation - 12 March 2025

The International Organization of Securities Commissions (IOSCO), through its Fintech Task Force, has published a consultation report on the rise of the use of artificial intelligence (AI) in capital markets and its impact on investors. The report notes that firms are increasingly using AI to support decision-making processes in applications and functions such as robo-advising, algorithmic trading, investment research, and sentiment analysis. AI is also being used to enhance surveillance and compliance functions, particularly in anti-money laundering and counter-terrorist financing measures. Comments on the report, which also cites risks most commonly cited with respect to the use of AI systems, are welcomed by 11 April 2025.

Neo-brokers - IOSCO publishes consultation - 12 March 2025 

The International Organization of Securities Commission (IOSCO) has published a consultation (CR/02/2025) on neo-brokers (a subset of brokers providing online-only investment services without physical branches, thereby using technology to facilitate those services and access to financial markets). It identifies two areas which require specific action: (i) potential conflicts of interest due to business models inducing retail clients to trade more frequently; and (ii) the need for robust IT infrastructure. The report also sets out recommendations that member jurisdictions may consider applying, relating to (among others) the disclosure of fees and charges to retail investors.

Comments on the proposed guidance, as well as views regarding the specific consultation questions (which can be found in the foreword), are welcomed by 12 May 2025.

FINANCIAL CONDUCT AUTHORITY

UK bond CTP - FCA publishes tender notice - 7 March 2025

The FCA has announced the release of documents for its tender process to appoint a bond consolidated tape provider (CTP). The bond CTP will establish a consolidated tape for bonds that will collate bond market data, such as trade prices and volumes to provide a comprehensive picture of transactions in a specific asset class. It will bring together information on trades executed on trading venues and those arranged OTC.

The details of the two-stage tender process were set out in the FCA’s December 2024 consultation paper (CP23/33), as reported previously in this Bulletin. Those interested in bidding are invited to register on the FCA’s procurement portal and submit any questions by 28 March 2025. Applications for the first stage of the tender will close on 25 April 2025. The winning bidder must sign a contract with the FCA and apply for authorisation as a CTP. The FCA intends to make a decision on its authorisation application by the end of 2025.

Liquidity risk management at wholesale trading firms - FCA publishes findings of multi-firm review - 10 March 2025

The FCA has published the findings of its review of liquidity risk management at a range of wholesale trading (sell-side) firms, particularly brokers, in scope of the Investment Firms Prudential Regime. The review involved a comparison of firms’ approaches to liquidity risk management across a range of sell-side business models. The findings form part of a broader communication process that involves holding workshops and roundtables with firms and industry trade bodies to improve liquidity risk management in the sector. According to the FCA’s findings, some firms had weaker approaches to liquidity risk management that were not commensurate with their size, complexity and the instantaneous nature of their liquidity risks. The FCA also found some weaknesses in firms’ approach to liquidity stress testing that left them vulnerable to severe market events, and unprepared to cope with moderate idiosyncratic events. The primary liquidity risk for all firms was intra-day (T0) and inter-day (T1) stressed cash outflows.

The FCA encourages firms to use this review including the good and poor practices section to improve their practical liquidity risk management capabilities and ensure that their framework is effective in identifying and managing the specific liquidity risks inherent in their business models.

FINANCIAL REGULATORS COMPLAINTS COMMISSIONER

FCA oversight of funeral plan provider - Complaints Commissioner publishes final report - 11 March 2025

The Financial Regulators Complaints Commissioner has published a final report on the FCA’s handling of Safe Hands Plans Limited, which operated a pre-paid funeral plan scheme that collapsed in March 2022, shortly after it failed to secure authorisation from the FCA. Customers of the firm did not qualify for compensation under the Financial Services Compensation Scheme.

The Commissioner upheld the second element of the complaint which found that the FCA failed to adequately monitor the perimeter. The first element of the complaint about the design and implementation of a new regulatory framework before July 2022 (when funeral plan providers became regulated by the FCA) was excluded from investigation under the Complaints Scheme.

The FCA has published a statement rejecting the Commissioner's findings on this second element of the complaint. It will not be offering a compensatory payment to the customers of the firm above and beyond what has already been offered on an ex-gratia basis.

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FINANCIAL CRIME

HM TREASURY

AML/CTF - HM Treasury publishes supervision report 2023-24 - 13 March 2025

HM Treasury has published the 12th edition of its annual supervision report on anti-money laundering (AML) and counter-terrorist financing (CTF) for 2023-24. The report provides information about the activities of AML/CTF supervisors between 6 April 2023 to 5 April 2024, fulfilling HM Treasury’s obligation under regulation 51 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).

In the report, HM Treasury notes that the UK government is committed to the continued delivery of the Economic Crime Plan 2023-26 as well as reforming the UK’s AML/CTF regime and will announce a plan for reform as a priority. HM Treasury is also considering the feedback to its March 2024 consultation on potential changes to improve the effectiveness of the MLRs and intends to respond later this year. 

Alongside these updates, HM Treasury confirms that the Financial Action Task Force (FATF) has begun its fifth round of assessments of global efforts to tackle money laundering, and terrorist and proliferation financing. As part of this, the UK will undergo an in-depth evaluation by its peers, resulting in a new Mutual Evaluation Review. The assessment will consider the effectiveness of the UK’s counter proliferation financing regime and its compliance with the FATF’s 40 Recommendations. The assessment will be published in 2028.

FINANCIAL CONDUCT AUTHORITY

Suspected water investment scam - FCA charges fifth individual - 13 March 2025

The FCA has charged a fifth individual over a suspected water investment scam. The FCA alleges that the individual (alongside four others) was involved with the operations of an unauthorised investment scheme which defrauded investors out of £3.9 million between May 2015 and July 2019, misleading UK investors that their money would fund water extraction and bottled water production, and about the returns they could expect. The individual has been charged with three counts of conspiracy to commit fraud by false representation and is due to appear at Southwark Crown Court on 25 March 2025.

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