Financial Regulation Weekly Bulletin - 27 February 2025

GENERAL

FINANCIAL STABILITY BOARD

Global regulatory framework for cryptoassets - FSB publishes terms of reference for thematic review - 21 February 2025

The Financial Stability Board (FSB) has published summary terms of reference for a thematic peer review of its global regulatory framework for cryptoasset activities. The framework (published in July 2023) consists of two sets of high-level recommendations for the regulation, supervision and oversight of cryptoasset activities and markets and ‘global stablecoin’ arrangements. 

The FSB has sent a questionnaire to relevant jurisdictions inviting feedback on selected issues related to the regulation of cryptoassets, details of which can be found in the accompanying press release. 

The FSB welcomes feedback by 28 March 2025. It expects to publish the peer review report in October 2025.

EUROPEAN COMMISSION

Omnibus sustainability package - European Commission publishes proposals - 26 February 2025 

The European Commission has proposed an Omnibus package on sustainability reporting and due diligence, as trailed in its 2025 Work Programme. See our earlier blog posts on the omnibus package here and here. The package consists of two proposed Directives:

• a Directive (COM(2025) 80) that would delay the application of the Corporate Sustainability Reporting Directive 2022 ((EU) 2022/2464) (CSRD) and the Corporate Sustainability Due Diligence Directive ((EU) 2024/1760) (CSDDD) by postponing for two years the application of sustainability reporting requirements for all companies that are required to comply from financial year 2025 or 2026 (depending on size). The Directive would also postpone the transposition and application of the CSDDD for the first group of in-scope companies by one year; and
• a Directive (COM(2025) 81) that would amend the CSRD, the CSDDD, the Accounting Directive ((EU) 2013/34) and the Statutory Audit Directive (2006/43/EC) as regards certain corporate sustainability reporting and due diligence requirements. Among other things, this would allow certain companies to disclose information under the Taxonomy Regulation in a more flexible way.

Two further Regulations have been proposed as part of the simplification measures, namely a proposal for a Regulation amending the Carbon Border Adjustment Mechanism Regulation (EU) 2023/956); and a proposal for a Regulation on investment simplification, amending Regulations (EU) 2015/1017, (EU) 2021/523, (EU) 2021/695 and (EU) 2021/1153.

The proposals will be submitted to the European Parliament and the Council for their consideration and adoption. The legislative proposals can be found in the Commission’s omnibus webpages. See also the item below on the publication of a call for evidence on the Disclosures Delegated Act. 

Taxonomy Regulation - European Commission publishes call for evidence on proposed amendments to Disclosures Delegated Act - 26 February 2025

The European Commission has published a call for evidence on a draft Delegated Regulation that would amend the Disclosures Delegated Act ((EU) 2021/2178) (Ares(2025)1546172). The Commission has also proposed amendments to the Taxonomy Climate Delegated Act (Commission Delegated Regulation (EU) 2021/2139) and the Taxonomy Environmental Delegated Act (Commission Delegated Regulation (EU) 2023/2486). The call for evidence forms part of the Commission’s omnibus simplification package on sustainability reporting and due diligence, referred to above.

The draft Delegated Regulation would introduce a 10% de minimis compliance threshold which would exempt large undertakings with a wide variety of activities from assessing compliance with the technical screening criteria of non-material economic activities.

In addition, exposures of financial institutions to undertakings (that are not large undertakings) that exceed the average number of 1,000 employees during the financial year would be excluded from the denominator of the applicable key performance indicators (KPIs) until the Commission has finalised its review of the Disclosures Delegated Act. Also, the application of the trading book KPI and the fees and commission KPI would be postponed until 2027. Finally, the Commission proposes to simplify certain reporting templates.

The call for evidence closes on 26 March 2025.

FINANCIAL CONDUCT AUTHORITY

Enabling growth - FCA publishes speech confirming initiatives - 27 February 2025

The FCA has published a speech delivered by Nikhil Rathi, Chief Executive, at the Association of British Insurers roundtable on how the FCA is working at pace to support growth initiatives. Rathi confirms that in the coming weeks, the FCA intends to move at pace on the 50 or so growth proposals it made recently in a letter to the Prime Minister, as previously reported in this Bulletin. These relate to matters including mortgage affordability, digital payments, removing redundant data returns, supporting international promotion of UK financial services, opening up to more innovative firms and cutting barriers between regulators. Rathi also notes that, as trailed in that letter, the FCA has removed the expectation for a consumer duty board champion from 27 February 2025.

As the FCA works with the government on its financial and professional services strategy, Rathi asks for “bold thinking” around articulation of the government's risk appetite, particularly in relation to consumer harm. Finally, the FCA has heard industry concerns around the pace of regulatory change and is aiming for fewer large-scale changes in its next five-year strategy. The diversity of responses to the Call for Input on the FCA’s review of retail conduct requirements suggests that there is a debate to be had around the speed of change. 

AI explainability in credit decisions - FCA publishes research note - 24 February 2025

The FCA has published a research note on AI explainability in the context of algorithm-assisted decision-making, using consumer credit decisions as a case study to test out different approaches. The note considers whether participants in the study were able to identify errors caused either by incorrect data used by the algorithm or by flaws in the algorithm's decision logic itself. In short, the authors found that providing additional information about the inner workings of the algorithm was well received by consumers and gave them greater confidence in their ability to disagree with the algorithm's decisions. However, they also found that more information could impair consumers’ ability to challenge errors, leading to worse outcomes. As such, the findings underscore the importance of testing consumers' decision-making within the relevant context, rather than relying solely on self-reported attitudes.

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SECURITIES AND MARKETS

EUROPEAN COMMISSION 

Commodity derivatives market - European Commission launches targeted consultation - 26 February 2025

The European Commission has published a consultation on the current regulatory landscape for commodity derivatives, emission allowances markets and certain aspects of spot energy markets. The consultation will feed into the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) report exercise and guide potential future policy choices in this area. It covers all types of commodities and is not limited to energy derivatives.

Responses to the consultation are welcomed by 9 April 2025. 

BANK OF ENGLAND AND FINANCIAL CONDUCT AUTHORITY

Shortening the UK securities settlement cycle - Bank of England and FCA publish speeches - 21 February 2025

The Bank of England (the Bank) and the FCA have each published speeches on shortening the UK securities settlement cycle to T+1. The FCA has also published a new webpage to support industry in transition to T+1.

The Bank has published a speech delivered by Sasha Mills, Executive Director of Financial Market Infrastructure, confirming that the Bank, along with the FCA and HM Treasury, supports the UK’s transition to T+1 and calling on firms “to prepare, adapt and test systems” to facilitate a smooth transition. Mills also highlights two challenges that will need to be addressed, namely adapting to multiple time zones and standardising settlement instructions. Mills concludes the speech by outlining the Bank’s expectations of financial market infrastructures in the transition process.

Separately, the FCA has published a speech delivered by Mark Francis, Interim Director of Wholesale Markets Sell-Side, setting out the FCA’s expectations for firms ahead of the October 2027 deadline to transition to T+1. Specifically, Francis calls on firms to read the Accelerated Settlement Taskforce final report; plan and prepare early; budget to execute their plans; and act to implement and test changes, on a timely basis. 

FINANCIAL CONDUCT AUTHORITY

NBFI leverage - FCA publishes speech on managing systemic risks - 26 February 2025

The FCA has published a speech (delivered on 25 February 2025) by Sarah Pritchard, Executive Director of Consumers, Competition and International, on the FCA’s approach to addressing systemic risks arising from non-bank financial intermediation (NBFI) leverage.

In the speech, Pritchard observes that the first and second ‘lines of defence’ against the build-up of systemic risk from leverage use involves NBFIs themselves managing risk and counterparty credit risk. However, to do this, NBFIs need to have access to adequate data. Pritchard explains that targeted improvements to public and private disclosures could therefore help in mitigating the build-up of systemic risk.

The FCA needs to have the necessary data, systems and tools to identify the financial stability risks that market participants miss. It may need to make targeted changes to its data collection to ensure it can assess the use of leverage in a comprehensive and risk-sensitive manner. It will consider this as part of the upcoming review of the Alternative Investment Fund Managers Directive (2011/61/EU). 

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FINANCIAL CRIME

THE WOLFSBERG GROUP AND FINANCIAL ACTION TASK FORCE

Payment transparency - Wolfsberg Group publishes guidance and FATF consults - 21 and 25 February 2025 

The Wolfsberg Group has published guidance (dated 16 December 2024) supplementing the latest version of its payment transparency standards (published in October 2023). The guidance provides an overview of the roles played by key actors in a payment chain, set out in two tables. It also outlines their respective responsibilities to abide by the payment transparency standards across a sample of common payment flows and serves as a reference guide that can be used by all payment service providers, regulators and standard setters.

The Financial Action Task Force (FATF) has separately published a second public consultation on proposed revisions to recommendation 16 (wire transfers) on payment transparency. Responses to the consultation are welcomed by 18 April 2025. The FATF expects to finalise the revisions in June 2025, following which it will develop guidance on payment transparency.

FINANCIAL ACTION TASK FORCE

Financial inclusion and consequences of AML/CTF standards - FAFT publishes revised recommendations and consultation - 26 February 2025

The Financial Action Task Force (FATF) has published a revised version of its anti-money laundering (AML) and counter-terrorist financing (CTF) standards to better promote financial inclusion. It has also launched a public consultation outlining its proposals for updated guidance on AML and CTF measures and financial inclusion.

The updated draft guidance updates the concept of financial inclusion and its implications for financial sector integrity. It also includes additional guidance and best practice examples of the risk-based approach. The FATF has asked for feedback on a number of specific issues, including whether further guidance and examples on tailoring measures to address financial inclusion in non-lower risk situations are required.

The deadline for responses is 4 April 2025.

Complex proliferation financing and sanctions evasion schemes - FATF consults - 26 February 2025

The Financial Action Task Force (FATF) has published a consultation paper (in the form of a survey) as part of a study to improve understanding of current proliferation financing (PF) risks at a country and private-sector level. In this context PF risks are the risk of potential breaches, non-implementation or evasion of ‘targeted financial sanctions’ (namely sanctions implemented to comply with UN Security Council resolutions against the proliferation of weapons of mass destruction and its financing). The survey seeks information on best practices in mitigating PF risk, including on the products and services that are most vulnerable to sanctions evaders and PF actors.

Responses to the consultation are welcomed by 21 March 2025. 

THE WOLFSBERG GROUP

Defining digital assets for ML/TF purposes - Wolfsberg Group publishes FAQs - 21 February 2025

The Wolfsberg Group has published FAQs to help financial institutions assess the risks generated by the emergence of digital assets for anti-money laundering and counter-terrorist financing purposes. In particular, the definitions can also assist financial institutions when developing policies and appropriate controls and act as a resource for supervisors and regulators.

The group intends to provide periodic updates to support the continued risk profiling and treatment as the use of digital assets continues to evolve. 

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