Financial Services SpeedRead: 19 March 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. EU Commission publishes consultation regarding a review of the functioning of commodity derivatives market and spot energy markets

On 26 February 2025, the EU Commission published a targeted consultation regarding the functioning of commodity derivatives and emission allowances markets and certain aspects of spot energy markets. It is addressed to commodity market participants in the EU.

The objectives of the consultation are as follows:

• the outcome will feed into the EU Commission's report to the European Parliament and Council on the markets for commodity derivatives, emission allowances, and derivatives on emission allowances; and
• the consultation will feed into the EU Commission's broader evidence gathering in this area to inform future policy decisions, including any required legislative amendments to MiFID or the Regulation on wholesale energy market integrity and transparency ((EU) 1227/2011).

The consultation closes on 9 April 2025.

Banking and Prudential

2. Treasury Committee publishes its findings regarding banking IT failures

On 6 March 2025, the Treasury Committee published a webpage detailing the responses it received from the CEOs of eight banks and one building society regarding data from recent IT failures.

This responses were provided by: Bank of Ireland UK, Barclays, AIB, Lloyds, Santander, HSBC UK, NatWest, Danske Bank, and Nationwide.

The Treasury Committee set out that between the responses, there were at least 158 banking IT failure incidents between January 2023 and February 2025, accumulating at least 803 hours of unplanned tech and systems outages which impacted millions of customers' ability to access and use services.

The Treasury Committee highlighted that it is critical for banks to react swiftly to failures and keep customers informed throughout. It commended the entities which compensated customers for stress endured, and encouraged others to think about whether they are doing enough in this regard.

3. PRA publishes consultation paper regarding raising retail deposits leverage ratio threshold

On 5 March 2025, the PRA published consultation paper CP2/25 regarding changes to the retail deposits leverage ratio threshold.

The retail leverage ratio applies as a requirement to "major UK banks, building societies and investment firms", as well as those firms with "significant non-UK assets".

The PRA proposes to increase the threshold for the requirement from £50 billion retail deposits to £70 billion retail deposits. The PRA's proposal is intended to reflect the risk appetite behind the UK leverage ratio framework and to preserve the proportionality of the framework. In particular, the proposal aims to address the inadvertent regulatory tightening caused by nominal UK GDP growth.

The consultation closes on Thursday 5 June 2025. The PRA proposes that the implementation date for the changes from the consultation paper be 1 January 2026.

4. EBA publishes consultation paper on implementing technical standards relating to benchmarking market and credit risk under CRD IV

On 25 February 2025, the EBA published a consultation paper (EBA/CP/2025/03) regarding proposed amendments to Commission Implementing Regulation (EU) 2016/2070 (the Implementing Regulation) on the benchmarking of credit risk, market risk and IFRS9 models for the 2026 benchmarking exercise under Directive 2013/36/EU (CRD IV).

Under Article 78 of CRD IV, National Competent Authorities are required to conduct an annual assessment of how firms are calculating own funds requirements. The EBA calculates and distributes benchmark values for these, which are based on data submitted under the Implementing Regulation.

The consultation proposes changes to the Implementing Regulation that would inform the 2026 benchmarking exercise. The most significant of these are as follows:

• for credit risk, the asset classes definition would be aligned with the breakdown of credit risk internal ratings based templates;
• in the market risk framework, new templates and instructions for collecting alternative internal model approach risk measures (which reflect the changes introduced by the fundamental review of the trading book methodology); and
• the scope of the benchmarking exercise is proposed to be extended to cover banks that solely apply the alternative standardised approach methodology.

A public hearing on this consultation will take place on 10 April 2025. The deadline for the submission of comments is 26 May 2025.

Fund Management

5. FCA publishes multi-firm review on private market valuation practices

On 5 March 2025, the FCA published a multi-firm review on private market valuation practices. The review covered firms managing funds or providing portfolio and/or advisory services in the UK for private equity, venture capital, private debt and infrastructure assets.

The FCA found that robust valuation processes could evidence independence, expertise, transparency, and consistency. Other areas of good practices also included:

• high-quality reporting to investors;
• documenting valuations;
• using third-party valuation advisers to introduce additional independence and expertise; and
• consistent application of established valuation methodologies.

Poor practice involved only partially documenting and identifying potential conflicts. These included potential valuation-related conflicts related to investor marketing, secured borrowing, asset transfers, redemptions and subscriptions, and uplifts and volatility.

The FCA expects firms to consider the findings from the review and identify any gaps in their approach, taking into account the firm's size and the materiality of any identified gaps.

6. FCA publishes Dear CEO Letter regarding supervisory strategy for asset management & alternatives

On 26 February 2025, the FCA published a Dear CEO letter to firms in the asset management and alternatives portfolio sector (the Sector). The letter sets out the FCA's current supervisory priorities for the Sector, which are focused on the following three priority areas and two additional areas for targeted work.

Private markets: supporting confident investing in private markets

• AIFMD reform: the FCA will engage with industry this year to undertake a review of AIFMD aiming to "streamline regulatory requirements" for firms.
• Conflicts of interest: The FCA announced its plans for a multi-firm review of firms' approaches to identifying, managing, and mitigating conflicts of interest. Conflicts increase the likelihood and severity of investor harm and the FCA expects to see evolving and updated conflicts procedures.
• Retail investors: The FCA intends to continue its review and supervision of firms in the Sector to support the development of innovative retail products. The FCA expects firms to consider if their product development frameworks are fit for purpose and to understand retail distribution chains to meet Consumer Duty expectations.

Market integrity and disruption: building firm and financial system resilience against market disruption

• Resilience: the FCA intends to focus its surveillance effects on prudent risk management, liquidity management and operational resilience as informed by the Bank of England's findings from the System Wide Exploratory Scenario (SWES). The SWES report provides insights on firms' risk management practices and system wide dynamics for stress testing and contingency planning.
• Liquidity risk: firms with high leverage, illiquidity, or concentrated investment strategies can expect particular scrutiny and data requests as the FCA continues to monitor liquidity risk management

Consumer outcomes: securing positive outcomes for consumers

• Consumer outcomes: the FCA encourages firms to continue to improve its customer outcomes by improving monitoring functions, in line with the Consumer Duty. It refers to the upcoming publication of its multi-firm review findings in relation to unit-linked funds; and states that it will undertake a review of model portfolio services to ensure customers are receiving good outcomes from the offering of such retail products and services. The FCA will also engage with firms to ensure a more flexible disclosure regime.

Other targeted work areas

• Sustainable Finance: the FCA will engage with firms offering sustainability-related products to understand how they are complying with the FCA's Sustainability Disclosure Requirements and Investment Labels regime.
• Financial Crime and Market Abuse: the FCA addresses the risks associated with the increase in investment in private assets and reminds firms to be alert to financial crime risk, in particular given the use of complex ownership structures. It expects firms to have appropriate AML and MAR controls.

Firms are expected to discuss the letter with their Board, Executive Committee, and accountable Senior Managers.

7. UK Government publishes Unauthorised Co-Ownership AIFs (Reserved Investor Fund) Regulations 2025

On 26 February 2025, the UK Government published the Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025 (SI 2025/216) (the Regulations) and an accompanying explanatory memorandum. The Regulations support the Government's introduction of the Reserved Investor Fund (RIF).

The RIF will be a UK-based investment fund vehicle legally structured as an unauthorised co-ownership AIF.

The Regulations ensure that the RIF is commercially viable by extending certain provisions of FSMA concerning contracts and the rights and liabilities of investors in authorised co-ownership contractual schemes to investors in RIFs.

The Regulations will come into force immediately after the Co-ownership Contractual Schemes (Tax) Regulations 2025 come into force on 19 March 2025.

Senior Managers and Governance

No new entries.

Financial Crime

8. EBA publishes consultation on AML and CFT regime

On 6 March 2025, the EBA published a consultation paper (EBA/CP/2025/04) relating to four draft Regulatory Technical Standards (RTS) central to the EU's new Anti-Money Laundering and Counter Financing of Terrorism regime. The draft RTS will form part of the EBA's response to the EU Commission's Call for Advice which was published 12 March 2024.

The proposed RTS focus on the following aspects:

• the way in which the EU Authority for Anti-Money Laundering and Countering the Financing of Terrorism will decide which institutions will be subject to direct supervision;
• the determination of the money laundering / terrorist financing risk associated with each institution;
• the extent and quality of information institutions will have to obtain as part of CDD; and
• indicators and criteria to be taken into account when setting the level of pecuniary sanctions.

A virtual public hearing will be held by the EBA on 10 April 2025 on the consultation paper. Registration for the public hearing closes on 8 April 2025.

The deadline for submitting comments to the consultation is 6 June 2025. Following this, the EBA will review the submissions received and finalise the RTS to be submitted to the Commission on 31 October 2025.

Retail Services

9. FCA publishes findings of its review into the Consumer Duty support outcome

On 7 March 2025, the FCA published the findings of its review into firms' approaches to the consumer support outcome of the Consumer Duty, which is one of the four key outcomes of the Consumer Duty. The review provides examples of good practices and areas of improvement, which the FCA intends for firms to use to understand the FCA's expectations.

The review found that most firms were considering how the support they provide meets their customers’ needs by having in place frameworks to understand their customer base, support for customer needs and effective monitoring of actions taken to achieve outcomes and / or highlight and address shortcomings.

The FCA also identified the following areas of good practice:

• proactively understanding the needs of customers;
• reviewing customer journeys to ensure support is easily accessible;
• building a culture that delivers good customer support outcomes; and
• monitoring whether customers receive the support they need.

The FCA also identified a number of areas for improvement, including:

• some firms had not aligned their support processes to their target market;
• some firms failed to improve their post-sale support services (e.g. lack of information and long wait times) compared to pre-sale support;
• some firms failed to show that they had made cultural changes in light of the Consumer Duty; and
• some firms failed to monitor a broad range of outcomes regarding effective customer support.

10. FCA publishes findings from review of firms' treatment of vulnerable customers

On 7 March 2025, the FCA published the findings from its multi-firm review of how firms are supporting customers in vulnerable circumstances and whether its existing guidance is still appropriate.

The FCA reviewed firms' actions in line with its guidance for firms on the fair treatment of vulnerable customers (FG21/1). The FCA highlighted that it had found many examples of positive action as part of the review, along with areas for improvement. Some of the key areas for improvement it identified included:

• most firms were unable to show how they effectively monitor and act on outcomes for vulnerable customers;
• some firms did not provide appropriate or accessible communication channels for vulnerable customers;
• most firms were not providing tailored training, or embedding consumers' needs into product and services design; and
• some firms failed to properly support staff in identifying vulnerable customers.

The FCA highlighted practical examples of good practice and areas for improvement in an accompanying webpage, published on the same day as the review.

Given its findings, the FCA determined that FG21/1 remains appropriate and helpful. It will therefore not be updating FG21/1.

11. FCA publishes new webpage regarding what consumer credit firms are required to do following authorisation

On 27 February 2025, the FCA published a webpage which provide an overview of the regulatory obligations on authorised consumer credit firms.

The webpage includes an overview of, among other obligations, the following requirements:

• regular reporting in accordance with the RegData reporting schedule;
• notification (via Connect) of changes to business details or control structure;
• payment of the correct fees;
• compliance with and monitoring of FCA Handbook principles, rules, regulations (including CONC); and
• informing the FCA openly and honestly of any significant events.

12. FCA updates webpage on consumer duty regarding Consumer Duty champions

On 27 February 2025, the FCA published an update to its webpage on the Consumer Duty.

The FCA no longer (with immediate effect) requires firms to have a Consumer Duty champion, stating that it wants to provide firms with "greater flexibility on their ongoing governance arrangements".

This update has been made in view of the FCA's expectation that the Consumer Duty should now be "'well-embedded in firms’ management discussions, processes, and policies". Firms can, however, retain the Consumer Duty champion role should they wish to do so.

13. FCA publishes multi-firm review regarding ongoing financial advice services

On 24 February 2025, the FCA published a multi-firm review of ongoing financial advice services. The review focused on the delivery of suitability reviews as firms generally included these as part of their ongoing financial advice services.

The FCA has found that financial advisers are delivering suitability reviews in the vast majority of cases included in its review. It is most concerned about the fewer than 2% of cases where firms reported they had made no effort to deliver the suitability review to clients. In these cases, it is likely redress will be due.

The FCA expects firms to consider its findings (including good and bad practices) and whether they have met their regulatory requirements and contractual obligations regarding ongoing services. If not, firms should take appropriate steps to remedy the situation. Consideration should include whether it would be appropriate for firms to proactively contact customers to assess if any harm was caused as a result of any identified failings.

Digital Finance and Fintech

14. EU Commission publishes RTS supplementing MiCA

On 27 February 2025, the EU Commission published three delegated regulations supplementing MiCA.

There are three RTS set out in the delegated regulations, which relate to record-keeping and conflicts of interest. They are as follows:

• RTS specifying records to be kept of all crypto-asset services, activities, orders and transactions undertaken.
• RTS specifying the requirements for policies and procedures on conflicts of interest for crypto-asset service providers and the details and methodology for the content of disclosures on conflict of interest.
• RTS specifying the requirements for policies and procedures on conflicts of interest for issuers of asset-referenced tokens.

The Council of the EU and European Parliament will now scrutinise the delegated regulations. If no objections are received, they will be published in the Official Journal of the EU and come into force 20 days later.

15. ESMA publishes guidelines on preventing circumvention of the reverse solicitation exemption under MiCA

On 26 February 2025, ESMA published the official translations of its guidelines on situations in which a third-country firm is deemed to solicit clients established or situated in the EU and the supervision of practices to detect and prevent circumvention of the reverse solicitation exemption under MiCA.

The ESMA guidelines, which reflect a mandate under Article 61 of MiCA:

• explain the means by which third-country firms solicit clients in the EU, stating that solicitation should be construed broadly and in a technology-neutral way;
• explain when a third-country firm should not be deemed to solicit clients;
• explain that a third-country firm may provide or market crypto-asset services of the same type in the context of the relationship started at the own exclusive initiative of a given client;
• explain supervision practices to detect and prevent the circumvention of the reverse solicitation exemption; and
• provide a non-exhaustive list of examples of circumstances where a third-country firm is likely to be regarded as solicitating clients in the EU.

The guidelines apply from 27 April 2025.

Payments

No new entries.

ESG

16. EU Commission publishes the omnibus package

On 26 February 2025, the EU Commission published the first Omnibus Package, which proposes to simplify the requirements of the Corporate Sustainability Due Diligence Directive 2024/1760, the Corporate Sustainability Reporting Directive 2022/2464 and the EU Taxonomy Regulation 2020/852.

Please see our Ashurst briefing on the Omnibus Package here.

17. EU Commission call for evidence on proposed amendments to Disclosures Delegated Act under the Taxonomy Regulation

On 26 February 2025, the EU Commission published a call for evidence on proposed amendments to the Taxonomy Disclosures Delegated Act, the Taxonomy Climate Delegated Act, and the Taxonomy Environmental Delegated Act. The call for evidence accompanies the Omnibus simplification package on sustainability reporting and due diligence (see item ‎16 above).

The proposed amendments include:

• the introduction of a 10% de minimis compliance threshold, in order to exempt large undertakings with a wide variety of activities from assessing the compliance with the technical screening criteria of non-material activities;
• excluding the exposures of financial institutions to undertakings that exceed the average number of 1,000 employees (that are not large undertakings) from the denominator of the applicable Key Performance Indicators until the EU Commission has finalised its review of Disclosures Delegated Act; and
• simplification of certain templates, including shortening the general reporting templates, and reducing duplicative elements in the specific reporting templates relating to performance and exposures to fossil gas and nuclear activities.

Feedback can be submitted on the proposed amendments until 26 March 2025.

Other

No new entries.

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