In this article we look at key regulatory topics for 2025 that will have a significant impact on institutions operating in the UK financial services space. We have not attempted to list every single reform expected this year but rather pick out the top reforms in both the wholesale and retail space, as well as the key regulatory enforcement developments to be aware of.
Wholesale / markets
In the markets space, we begin the year with a lot of change already underway and the promise of plenty more to come as 2025 progresses. We would highlight the following five reforms to look out for:
1. Crypto regulation starting to take shape
Following the updates published by the Government and the Financial Conduct Authority (FCA) in late 2024 on their approach to regulating cryptoassets, we are expecting to see draft legislation in early 2025 setting out exactly what will be regulated, followed by various publications from the FCA on its proposals for specific areas of cryptoassets. We already have something to get our teeth into with the FCA’s discussion paper (DP24/4) on the proposed admissions and disclosure regime and the crypto market abuse regime. We have also had confirmation, in the form of a statutory instrument, that cryptoasset staking services will not be treated as a collective investment scheme, providing some welcome certainty for firms. The first half of the year should bring a consultation on stablecoins, custody and prudential rules relating to crypto, with the second half following up with a consultation on systems and controls, the Consumer Duty, complaints, conduct of business and governance. This will prepare the FCA to make final rules in 2026 and enable the authorisation regime to start. Meanwhile, we look forward to seeing the progress of the first two participants in the Digital Securities Sandbox and the continuing focus on tokenisation, including digital gilts. From an enforcement perspective, we expect to continue to see activity in this area with the FCA focussed on the need for strong financial crime controls given the money laundering risks associated with crypto.
2. New market infrastructures
2025 really is the year for new UK market infrastructures (and acronyms). At the forefront is PISCES: the Private Intermittent Securities and Capital Exchange System. HM Treasury is due to publish the final legislation in May, to be followed by the rules the FCA will make off the back of the consultation that it launched in December. With a fair wind, we could see one or more PISCES operators starting to operate their secondary markets under the new PISCES sandbox regime by the end of the year. Many of the same issues are relevant to the new regime for public offer platforms (or “POPs”) – primary markets designed to help companies make public offers of securities to investors – so it will be interesting to see the FCA’s feedback to its July 2024 consultation on this.
3. Transparency and transaction reporting
The Wholesale Markets Review work continues. Various significant changes to the bond transparency regime will take effect on 1 December 2025, paving the way for the bond consolidated tape provider (CTP) to go live after that. It will be interesting to witness the tender process that will be used to select the CTP as it is unusual to have such single provider structures in UK financial services; tender documents for this are due to be published by 31 January 2025. The FCA will also be considering the responses received to its discussion paper on the systematic internaliser regime (published as part of PS24/14), which closed on 10 January 2025, and to its discussion paper on improving the transaction reporting regime which closes in February. We are also expecting FCA engagement on design options for the shape of a potential equities CTP early in 2025 and a consultation paper later in the year.
4. Commodities
The picture is slightly less clear on the commodities front with a lot of the recent activity being in the EU. However, various developments are clearly afoot in the UK, with the FCA having confirmed in May 2024 that it would work with HM Treasury and market participants to develop an approach to reforming the commodity derivatives regulatory framework that reflects the conclusions of the Wholesale Markets Review while taking account of concerns raised by industry in response to its December 2023 consultation on the topic. We assume that we will hear more about both the planned position limit changes and the future of the ancillary activity exemption in the UK in due course. The IOSCO recommendations on some of the Commodity Derivatives Markets Principles may also provide some signposting.
5. Operational resilience
2025 is also a big year for operational resilience. The final rules for critical third party providers took effect on 1 January 2025, although the new regime will only apply to such a provider once it has been designated as critical and the designation order has come into force and even then, certain requirements are subject to a transitional period. Then we have the EU’s Digital Operational Resilience Act (DORA), which came into force on 17 January 2025, and the end of the transitional period for full compliance with the UK operational resilience rules on 31 March 2025. The FCA is also consulting on new requirements for firms to submit standardised reports on operational incidents that breach certain thresholds and on certain firms making notifications and keeping registers of material third party outsourcing and non-outsourcing arrangements. The Bank of England and the Prudential Regulation Authority have both also launched consultations on operational resilience and third parties, with all three consultations remaining open until mid-March 2025. In terms of enforcement in this area, we have previously seen the regulators take action in connection with IT and cyber incidents and expect them to be continuing to watch closely where business disruption occurs – firms should look to learn lessons from previous cases, in particular with regards to the role of senior management.
Retail
2025 will be an incredibly busy year for those financial services firms operating in the retail space. Some of the challenges have already been on firms’ radars for some time whereas others will be completely new. There is a lot, but four big things that will shape the sector overall are mentioned below.
1. Motor Finance: Supreme Court of Appeal
Across the consumer finance ecosystem, firms are watching and waiting for the Supreme Court’s decision in the ‘Hopcraft’ appeals. The Court of Appeal’s decision sent shockwaves throughout the sector, and across other intermediated distribution models in retail / consumer financial services. The Court has accepted the respondents’ applications for appeal, and the hearing dates have been set for 1-3 April. Apart from the fundamental questions of whether or not brokers owe ‘fiduciary’ duties in the circumstances of these cases (or other similar settings), whether the ‘disinterested duty’ is a separate creature at all and how to resolve Wood and Hurstanger, firms outside the motor finance sector will be keen to have clarity and certainty as to the application of the legal and equitable principles in play to address potential wider implications. The FCA, which is actively engaged with the appeal, has also extended the pause on complaints handling in connection with discretionary commission arrangements (DCAs) to non-DCAs in the motor finance sector.
2. Retail disclosure
The consumer investment market will undergo significant changes as a result of reforms to retail disclosure. The new consumer composite investments (CCIs) regime looks set to herald a move away from the PRIIPS key information document and its formulaic, prescribed approach to disclosure which has been much criticised in the market. Following an FCA consultation issued in December, the final rules on the new regime impacting approximately 23% of the UK’s adult population will be published later this year. There are some major changes afoot – the new Designated Activities regime will be used to bring into scope overseas product manufacturers; whilst the focus of regulatory requirements themselves will focus in on UK distributors. The FCA’s proposals will give greater flexibility to allow distributors to better integrate disclosure within customer journeys to support consumer understanding, but this new flexibility may mean accepting less regulatory certainty. The FCA is proposing an 18-month transitional period but given the extent of the changes this may not be as generous as it seems. As ever, it is critical for firms to put these reforms in the context of the Consumer Duty, its broad-based requirements and – in that regard – the FCA’s Call for Input may also mean changes to the architecture of the Handbook beyond disclosure requirements.
3. Payments
Implementation of the authorised push payment (APP) scams reimbursement requirement continues apace, with many firms now turning to their contractual amendments and it is clear from the FCA’s October 2024 Dear CEO letter to payments firms that policing this area will not be left to the Payment Systems Regulator alone; simultaneously the payments ecosystem continues to work through the implications of the FCA’s proposed reforms to safeguarding requirements. Greater alignment with the FCA’s Client Assets sourcebook will have significant compliance and operational implications for authorised payments institutions (APIs) – including the proposal for senior management function responsibility for safeguarding; and the future for the ‘insurance/guarantee method’ does not look particularly bright. And all of this will be going on against the backdrop of the Government’s new National Payments Vision which recognises, among other things, the importance of open banking which includes a proposed new regulatory framework for using incoming smart data powers in the Data (Use and Access) Bill, which is currently progressing through Parliament.
4. Operational incident reporting
Of cross-sectoral application, firms across the retail and consumer landscape (including APIs) will need to embed proposals on operational incident reporting. The proposals contain some major changes to the ways firms will need to respond to major operational incidents, including their engagement with the FCA. If introduced as consulted upon, firms will need to develop a new discipline and methodology to determine their operational incident reporting obligations which goes well beyond the traditional Principle 11 approach. Firms will have some critical questions as to the scope and application of the proposals, even with the helpful case studies (clearly based around recent, high-profile incidents). Many will also have already clocked that these proposals have introduced a new concept of ‘intolerable consumer harm’, which will need to work through the implications in order to ensure that direct and indirect impacts are properly understood, and that new frameworks are able to dynamically respond as events emerge. For those firms operating in Europe too there is also the problem of dealing with the Digital Operational Resilience Act, DORA, which came into force on 17 January. Whilst there are some similarities between the UK and EU regimes there are important differences.
Enforcement
The FCA is evolving its approach to enforcement: reducing its enforcement portfolio size and increasing its use of interventions and preventions. A particular hot topic for this year is the approach to be taken to publishing enforcement investigations, with the FCA having issued in November CP24/2, Part 2 in relation to its controversial ‘name and shame’ proposals. Responses to these revised proposals are due in mid-February. In terms of expected enforcement themes for 2025, in addition to those mentioned above we would highlight: (i) reducing and preventing financial crime, including in relation to anti-money laundering and sanctions systems and controls; (ii) ESG, with the FCA having confirmed its first ESG-related enforcement investigation; and (iii) non-financial misconduct, with the FCA intending to publish its final policy statement on this topic early this year (we understand that the FCA will publish its remaining diversity and inclusion proposals later in 2025). In addition, in November, the government published general guidance on the new failure to prevent fraud offence under the Economic Crime and Corporate Transparency Act 2023 and has confirmed that this offence will come into effect on 1 September 2025, with firms now having less than eight months to assess, enhance, and/or implement reasonable and proportionate policies, procedures, and systems and controls to detect and prevent a wide range of fraud offences.
And finally
There is a huge amount to unpack as the year unfolds but one thing is certain – the ‘growth mindset’ has not slowed the pace of regulatory change.