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Financial Services SpeedRead: 14 April 2025 edition

14 April 2025

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    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. ESMA publishes MiFIR Review consultation package on transparency for derivatives, package orders, and input/output data for the derivatives consolidated tape

    On 3 April 2025, ESMA published its fourth consultation package under the MiFIR Review workstream, containing proposals for a new transparency regime for exchange traded and OTC derivatives under MIFIR, following the amendments introduced by the MiFIR Review, which entered into force on 8 March 2024.

    The consultation paper contains proposals: (i) defining the new scope of derivatives that will be subject to the transparency regime; (ii) applying the new liquidity determination to pre-trade waivers; and (iii) introducing amendments to post-trade transparency fields and flags. A new deferral regime is also being proposed for exchange traded and OTC derivatives, including different size thresholds and deferral durations to be applied for post-trade transparency.

    In addition, ESMA is consulting on proposals to review the "package order RTS" (i.e. Commission Delegated Regulation (EU) 2017/21942). Proposals to develop draft regulatory technical standards prescribing data quality requirements for prospective consolidate tape providers and data contributors, covering the OTC derivatives tape, are also put forth for consultation.

    All comments and feedback on the proposals can be submitted by 3 July 2025. ESMA expects to publish a final report and submit the draft technical standards to the European Commission by the end of Q4 2024.

    2. FCA publishes policy statement on derivatives trading obligations and post trade risk reduction services

    On 3 April 2025, the FCA published a policy statement (PS25/2) which summarises the feedback received in relation to its consultation paper CP24/14 (please see our previous briefing on this here).

    The policy statement focuses on the FCA's proposals in relation to including certain overnight index swaps (OIS) based on the US Secured Overnight Financing Rate (SOFR) within the classes of derivative subject to the Derivatives Trading Obligation (DTO).

    The key takeaways are as follows:

    • Inclusion of SOFR OIS in the Derivatives Trading Obligation (DTO): the policy expands the scope of the DTO to include specified classes of SOFR OIS. This will be subject to some restrictions around the inclusion of the 12-year SOFR product.
    • Expansion of Post-Trade Risk Reduction Services (PTRR Services) Framework: the final rules framework provides exemptions from the DTO for transactions arising from the use of PTRR Services, including portfolio compression, portfolio rebalancing, and basis risk optimisation, provided these services meet specific criteria.

    The associated changes to rules will come into force 30 June 2025.

    3. ESMA issues clarification on the Consolidated Tape Provider for bonds

    On 2 April 2025, ESMA published clarifications on the Consolidated Tape Provider (CTP) for bonds, including: (i) the potential grant of a transition period to the selected and authorised CTP; and (ii) the timing of the entry into force and application of the delegated acts relating to the CTP and transparency regime.

    The draft regulatory technical standards (RTS) relating to CTPs were published by ESMA on 16 December 2024, but are still under review and have not yet been endorsed by the European Commission. Nevertheless, all market participants are encouraged to refer to the draft RTS when undertaking prepatory steps for the commencement of the CTP's activities.

    The process for CTP selection launched in January 2025, with ESMA expecting to reach a reasoned decision on the selected applicant by early July 2025. The selected applicant will operate the CTP for five years, and all data contributors are encouraged to engage with the CTP for any necessary preparatory steps, including but not limited to connectivity, licensing and other practical and technical arrangements needed.

    ESMA encourages market participants to prepare for the commencement of the CTP without counting on the potential grant of an extended transition period following authorisation of the CTP.

    Banking and Prudential

    4. PRA publishes consultation paper regarding raising FSCS deposit protection limit and implementing Bank Resolution (Recapitalisation) Bill

    On 31 March 2025, the PRA published a consultation paper proposing certain amendments to the depositor protection part of its rulebook (CP4/25).

    These proposals include:

    • increasing deposit protection limit from £85,000 to £110,00, with effect from 1 December 2025;
    • increasing the limit for certain temporary high balance claims from £1 million to £1.4 million;
    • establish a transitional period expiring on 31 May 2026 for firms to update disclosure materials regarding the protection limits; and
    • introducing rules to support the Bank Resolution (Recapitalisation) Bill. In particular, rules for recapitalisation which will sit alongside those relating to compensation.

    The proposals take into consideration the rise of inflation since 2017, when the limit was last updated, and aims to enhance the confidence of consumers. If approved, the new deposit protection limit will apply from 1 December 2025.

    The deadline for responses to proposals concerning the Bank Resolution (Recapitalisation) Bill is 30 April 2025, and the deadline for responses relating to the depositor protection limit is 30 June 2025.

    5. EU Commission publishes proposal to maintain current liquidity rules

    On 31 March 2025, the EU Commission published a proposal for amending the Capital Requirements Regulation (CRR), which would have the effect of maintaining transitory prudential requirements currently applicable to certain financial transactions.

    Until 28 June 2025, under the CRR some short-term securities financing transactions (SFTs) benefit from lower liquidity requirements than those under Basel III international standards. The legislative proposal would maintain this transitional treatment due to expire on 28 June 2025, by changing the net stable funding ratio (NSFR) assigned to SFTs undertaken with financial customers. The purpose of such changes is to support the liquidity of EU markets, avoid increasing issuance costs in the EU, and to increase the competitiveness of the EU financial system in line with the goals established in the savings and investments union communication.

    The proposal will be reviewed by the European Parliament and the Council. However, due to the fast approaching deadline, the Commission have asked for the co-legislators to process the proposal swiftly given the current transitional period will end on 28 June 2025.

    6. EU Commission publishes consultation paper regarding the application of the market risk prudential framework

    On 24 March 2025, the EU Commission published a targeted consultation on the application of the market risk prudential framework.

    The EU implemented all Basel III standards on 1 January 2025, save for the fundamental review of the trading book (FRTB), which has been delayed until 1 January 2026 in order to align implementation with other global jurisdictions.Recent developments have indicated further possible delays in implementation in these jurisdiction. Consequently, the EU Commission has set out its options in this regard in the consultation.

    The three potential options included in the consultation are:

    • implementing the FRTB as currently laid down in the banking package, from 1 January 2026;
    • postponing the date of application by a further year to 1 January 2027; or
    • introducing temporary and targeted amendments to the market risk framework for up to three years.

    The consultation closes on 22 April 2025, and the EU Commission will use responses to help it determine the best approach for the application of the EU prudential framework for market risk.

    7. FCA and PRA consult on changes to guidance and rules on mortgage lending threshold

    On 3 April 2025, the FCA and PRA published a joint consultation paper proposing amendments to the PRA Rulebook and FCA Guidance on the de minimis threshold for the loan to income (LTI) flow limit in mortgage lending (FCA CP25/6, PRA CP6/25).

    The regulators propose to increase the de minimis threshold for the LTI flow limit in mortgage lending from £100 million to £150 million per four rolling quarters. This change aims to support small lenders and enhance competition by aligning the threshold with nominal GDP growth, addressing the issue of small firms exceeding the previous threshold due to economic and house price increases.

    The consultation closes on 8 May 2025.

    8. Bank of England publishes press release announcing launch of 2025 bank capital stress test

    On 24 March 2025, the Bank of England published a press release announcing the launch of the 2025 Bank Capital Stress Test (the Stress Test).

    The Stress Test will have three elements: (i) a macroeconomic scenario; (ii) a financial markets and traded risk scenario; and (iii) a misconduct stress. It aims to assess the resilience of the UK banking system to large falls in asset prices, a stressed level of misconduct costs, higher global interest rates and deep simultaneous recessions in the UK and global economies.

    The seven largest and most systemic UK banking groups will participate, representing about 75% of lending by the UK banking system.

    The results of the Stress Test will be used to assess risks in the banking system and inform policy responses ,including the setting of capital buffers.

    The results will be published in Q4 2025.

    Fund Management

    9. HM Treasury consults on regulatory changes for AIFMs

    On 7 April 2025, the UK Government published a consultation paper proposing regulatory changes in the regulatory framework for AIFMs, as part of the Government's commitment to simplify regulation and boost economic growth. AIFMD, introduced in 2013 and which has since been assimilated into UK law, aims to address the risks posed by AIFs and harmonise the regulatory framework across the EU.

    Currently, the UK has two regimes for sub-threshold AIFMs: the Small Authorised Regime and the Small Registered Regime (together, the Small Regimes). The Government argues these regimes are outdated, creating cliff-edge risks where sub-threshold AIFMs face minimal requirements, while those above the threshold encounter significantly more stringent regulations.

    Key proposals include, but are not limited to :

    • removal of legislative thresholds for the Small Regimes, thereby bringing such sub-threshold AIFMs within the regulatory perimeter;
    • requiring managers of sub-threshold Internally Managed Companies to seek FCA authorisation;
    • maintaining Closed-Ended Investment Companies within the scope of AIFM regulations to ensure financial stability and consumer protection; and
    • eliminating the need for full-scope UK AIFs to notify the FCA 20 working days prior to marketing AIFs to professional investors, and potentially amending notification requirements relating to AIFs acquiring control of non-listed companies and issuers.

    Feedback on the consultation can be provided by 9 June 2025. HM Treasury will subsequently publish a draft statutory instrument, and the FCA will consult on its proposed rules for AIFMs.

    Senior Managers and Governance

    10. PRA fines former non-executive director of Wyelands Bank Plc

    On 2 April 2025, the PRA published its final notice detailing a financial penalty of £72,000 on George Jay Hambro, former non-executive director of Wyelands Bank Plc. This fine follows the PRA's findings that Mr Hambro demonstrated a serious lack of due skill, care and diligence during his tenure from 3 July 2017 to 19 February 2020.

    Mr Hambro's breaches of Individual Conduct Rule 2 were in relation to the following three matters:

    • Recognition of capital: Mr Hambro failed to make necessary inquiries into the appropriateness of a £10 million capital injection indirectly funded by the bank itself, leading to the bank incorrectly reporting the capital as Common Equity Tier 1 capital under regulatory standards, which it was not;
    • Large Exposures assessments: Mr Hambro failed to make sufficient inquiries when instructing a GFG executive to backdate the resignation of a director to avoid breaching the Large Exposures limit. This action adversely affected the ability of Wyelands Bank and the PRA to assess compliance with the applicable Large Exposures limit; and
    • Relationship with the GFG Alliance: Mr Hambro failed to ensure compliance with Wyelands Bank's Engagement Policy, which was designed to manage conflicts of interest between the bank and the GFG Alliance.

    The PRA found that that Mr Hambro's actions posed prudential risks to Wyelands Bank, undermining its safety and soundness.

    Financial Crime

    11. ESMA consults on draft implementing technical standards on inside lists under the Listing Act

    On 3 April 2025, ESMA published a consultation paper proposing changes to the format for drawing up and updating insider lists. These changes have been proposed as part of the Listing Act amendments to the Market Abuse Regulation.

    The aim of the consultation paper is to reduce the administrative burden on issuers, and the draft ITS include the below three templates:

    • an event-based section for non-SME issuers and SME GM issuers in Member States that have opted out of the simplified regime;
    • a permanent section for non-SME issuers and SME GM issuers in Member States that have opted out of the simplified regime; and
    • an alleviated format for SME GM issuers under the simplified regime.

    Currently, only SMEs use the simplified insider list format. However, the consultation paper proposes extending the use of this format to all issuers.

    The consultation paper will close on 3 June 2025, as ESMA intents to submit its final ITS to the European Commission in Q4 2025.

    Retail Services

    12. EU Council releases proposals in respect to KID and retail investor protection rules

    On 24 March 2025, the EU Council released the following two proposals:

    • a Proposal for a Regulation amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document; and
    • a Proposal for a Directive amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EC and (EU) 2016/97 as regards the Union retail investor protection rules.

    The Council's suggested amendments to both sets of rules will be taken into consideration (along with the EU Commission's initial proposal and the European Parliament's suggestions) in forthcoming negotiations.

    Digital Finance and Fintech

    13. EU Commission publishes technical standards supplementing MiCA

    On 31 March 2025, the EU Commission published five Delegated Regulations and one Implementing Regulation containing regulatory and implementing technical standards supplementing the Regulation on markets in cryptoassets (MiCA). These are as follows:

    The Delegated Regulations and Implementing Regulation will come into force 20 days after publication in the Official Journal of the EU (being 20 April 2025).

    14. ESMA publishes guidance on suitability requirements and periodic statements for portfolio management under MiCA

    On 26 March 2025, ESMA published guidance for competent authorities and crypto-asset service providers (CASPs) on certain suitability requirements and the format of periodic statements for portfolio management activities under MiCA. This guidance comes into force on 25 May 2025.

    The key takeaways are as follows:

    Suitability requirements

    • Client information: CASPs must collect comprehensive and up-to-date information about clients or prospective clients. This includes understanding clients' risk tolerance, financial capacity, and investment goals; and
    • Qualification of staff: CASPs should ensure that their staff have the necessary skills and knowledge to conduct suitability assessments effectively.

    Periodic statements

    • Content: CASPs must issue periodic statements to clients in a durable medium, detailing the portfolio's contents and valuation, performance, fees and charges, and how the activities align with the client's preferences and objectives; and
    • Delivery: These statements should be accessible online, with clients notified of new statements, and include a comparison with agreed performance benchmarks and an explanation of how the activities meet the client's suitability profile.

    These guidelines will apply 60 days from the date of their publication on ESMA's website in all official EU languages (being 25 May 2025). National competent authorities must notify ESMA by this date whether they comply, do not comply but intend to comply, or do not intend to comply with the guidelines. Financial market participants will not need to report whether they comply with the guidelines.

    15. EU Commission publishes four new Delegated Regulations supplementing MiCA

    On 24 March 2025, the following Delegated Regulations supplementing the Regulation on Markets in Crypto-Assets were published in the Official Journal of the EU:

    The Delegated Regulations will come into force 20 days after publication in the Official Journal of the EU (being 13 April 2025).

    16. HM Treasury publishes policy paper on the pilot Digital Gilt Instrument issuance

    On 18 March 2025, HM Treasury published a policy paper detailing plans to launch a pilot Digital Gilt Instrument (DIGIT) issuance using distributed ledger technology (DLT). DIGIT will be a digitally native UK Government debt issuance and will be a transferable security held on a DLT platform within the Digital Securities Sandbox, established in September 2024.

    The initiative, led by HM Treasury and the UK Debt Management Office, seeks to gather information on available technological options and design choices to facilitate the issuance and stimulate the adoption of DLT in UK capital markets.

    The Government aims to use these findings to issue DIGIT and promote DLT infrastructure development. The creation of DIGIT is expected to transform the UK's capital markets sector, enhancing efficiency, transparency, and resilience. In a press statement, Chancellor Rachael Reeves stated that "the creation of DIGIT will help to transform our world-leading capital markets sector and drive economic growth".

    The deadline for responses on the policy paper is 13 April 2025.

    Payments

    No new entries.

    ESG

    17. European Parliament vote to postpone enforcement dates of new EU laws on due diligence and sustainability reporting requirements

    On 3 April 2025, the European Parliament published its vote to postpone the dates on which the new due diligence and sustainability reporting requirements come into force. This postponement comes in light of the "Omnibus I" simplification package published by the European Commission on 26 February 2025 and the EU's wider efforts to simplify regulatory requirements.

    Member states will have an extra year (until 26 July 2027) to transpose the new due diligence rules, which require companies to mitigate their negative impact on people and the planet, into national legislation. Similarly, large EU companies (with over 5000 employees and turnover higher than €1.5 billion) and non-EU companies (with turnover above €1.5 billion) will have until 2028 to prepare for the new due diligence rules.

    The sustainability reporting directive will also be delayed by two years, with large companies (over 250 employees) having to report on socio-environmental measures for the previous financial year in 2028, and small to medium enterprises having to provide this information in 2029.

    In terms of next steps, the draft law now requires formal approval by the European Council. In order to accelerate adoption of the measures, the Parliament has agreed to deal with the file under its urgent procedure.

    18. EU Council approves the 'Stop-the-clock' mechanism under the Omnibus package

    On 26 March 2025, the EU Council approved a negotiating mandate for the 'Stop-the-clock' directive, as part of the 'Omnibus I' package adopted by the Commission in February 2024, aimed at simplifying EU rules and boosting competitiveness. The directive postpones the implementation dates of certain corporate sustainability reporting and due diligence requirements.

    The directive postpones:

    • the entry into application of the Corporate Sustainability Reporting Directive by large companies and listed SMEs that have not yet started reporting for two years; and
    • the transposition deadline and first phase of application (covering the largest companies) of the Corporate Sustainability Due Diligence Directive Requirements for one year.

    Following the Council's approval of the mandate on 26 March, on 1 April 2025 Parliament passed a vote to fast-track its work on the stop-the-clock proposal.

    If the European Parliament endorses the text, the draft rules will only require formal approval by the EU Council to enter into force.

    Other

    19. FCA publishes written submissions to the Supreme Court in motor finance case

    On 1 April 2025, the FCA published its written submissions to the Supreme Court in the appeal of the Court of Appeal decision in Johnson v FirstRand Bank Ltd (London Branch) t/a Motonovo Finance [2024] EWCA Civ 1282.

    The FCA's submissions set out its analysis of the regulatory framework (including the Consumer Credit Act 1974) and the legal and equitable principles that are relevant to the case.

    In summarising its position, the FCA submitted that "the appropriate exposition of the legal and equitable principles falls between that of the Appellants and the Respondents." The FCA disagreed with the Court of Appeal's general approach of treating motor dealer brokers as owing fiduciary duties to consumers, while also recommending that the Court take appropriate care "before accepting the Appellants' invitation to jettison the tort of bribery or the ‘disinterested’ duty, as that may leave a lacuna in the law and lead to the distortion of established principles".

    20. FCA publishes outcomes and metrics for the next five years

    On 25 March 2025, the FCA published their outcomes and metrics that they want to achieve for consumers, markets and the wider economy between 2025 to 2030.

    The outcomes established by the FCA are in line with the four themes published in their 2025-2023 strategy, as follows:

    • Be a smarter regulator: The FCA are looking to maintain high adherence to service standards in their operating metrics and for continued improvement in metrics showing the delivery of their secondary objective on international competitive and growth;
    • Supporting sustained economic growth: The FCA have emphasised a focus on enabling investment and innovation. This outcome will be achieved by also ensuring that the UK's financial services remain competitive;
    • Help consumers navigate their financial lives: The FCA intend to work alongside the industry to boost product innovation and trust as well as ensuring people are provided with the correct information and support when making financial decisions; and
    • Fight financial crime: The FCA are aiming to go further to disrupt criminals, focusing on those who abuse their regulated status to do harm and support firms as an effective line of defence.

    The FCA are inviting views on the metrics via outcomes.metrics@fca.org.uk, and will provide updates on the metrics on an annual basis through the FCA website.

    21. EU Commission adopts DORA RTS on subcontracting ICT services

    On 24 March 2025, the European Commission adopted a Delegated Regulation supplementing the Regulation on DORA for the financial sector with regulatory technical standards (RTS) on subcontracting ICT services supporting critical or important functions. The obligations in relation to subcontracting remain unchanged, with the modifications only materially affecting chain subcontracting.

    The RTS establish:

    • rules on proportionality and group application;
    • rules on due diligence and risk assessment regarding the use of sub-contractors supporting critical or important functions;
    • the description and the conditions under which ICT services supporting a critical or important function may be sub-contracted; and
    • rules on material changes to sub-contracting arrangements of ICT service supporting critical or important functions and the provisions on the termination of contractual arrangements.

    The subcontracting RTS will come into force on 13 April 2025.

     

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

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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