Financial Services SpeedRead: 15 January 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 festive period. Please get in touch if you want to explore any of the topics covered in this edition of Financial Services SpeedRead in more detail.

Financial Markets 

1. UK Government: Statutory Instrument: FSMA (Collective Investment Schemes) (Amendment) Order 2025 

On 9 January 2025, the UK Government published a statutory instrument and accompanying explanatory memorandum entitled the FSMA (Collective Investment Schemes) (Amendment) Order 2025.

The statutory instrument amends FSMA by adding qualifying cryptoasset staking to the list of arrangements which do not amount to a collective investment scheme for the purposes of section 235 of FSMA.

2. ESMA: Final reports: MiFID II and MiFIR consultations 

On 16 December 2024, ESMA published a number of final reports to consultations published throughout 2024 in relation to the MiFID II and MiFIR reviews. The final reports cover the following areas:

• Equity transparency (RTS 1 and CDR 2017/567), available here: This report proposes amendments to the RTS and the technical advice on provisions relating to equity transparency under MiFID II, including (i) an amended definition of a liquid market for equity instruments; (ii) the specification of information to be disclosed for pre-trade transparency purposes; (iii) a review of the pre-trade transparency requirements for SIs; and (iv) a requirement for post-trade transparency reports.
• Technical standards related to consolidated tape providers (CTPs) and data reporting service providers (DRSPs), available here: This report includes technical standards on new rules applicable to CTPs regarding data quality and reporting, revenue distribution and authorisation, and updates to provisions on authorisation and organisational requirements for Approved Publication Arrangements and Authorised Reporting Mechanisms. ESMA has also published a feedback statement on the assessment criteria for the CTP selection procedures under Article 27da(2) MiFIR.
• Amendments to certain technical standards for commodity derivatives, available here: This report proposes amendments to technical standards concerning commodity derivatives, including: (i) a revised Article 57 MiFID II extending position management controls to trading venues which trade derivatives on emission allowances; and (ii) a revised Article 58 MiFID II which amends the scope of position reporting by excluding emission allowances and introducing the obligation to publish a second weekly position report for trading venues trading options.
• MiFIR review of RTS 2, available here: This report proposes amendments to regulatory technical standards on transparency requirements for bonds, structured finance products and emission allowances. The proposed pre- and post-trade transparency requirements are designed to ensure a high level of transparency whilst ensuring liquidity providers are protected from undue risk.

The European Commission will determine whether to adopt the final reports within three months of ESMA's submission. 

Please see our Ashurst briefing on the MiFID review here, and on the MiFIR review here. 

3. FCA: Dear CEO letter: Trading venues 

On 13 December 2024, the FCA published a Dear CEO letter regarding the FCA's supervision of trading venues over the next 2 years. 

The letter states that the FCA's highest priority for trading venues is to ensure the risk of market disruption arising from operational outages is minimised. Venues are expected to be able to conduct root cause analysis of all outages, and take remedial action. 

An additional focus will be on supervising the preparedness of recognised investment exchanges (RIEs) forthe new operational resilience framework  set out under policy statement PS21/3. By 31 March 2025, RIEs are expected to have identified their important business services, set impact tolerances and performed mapping and testing to ensure the impact tolerances can be met. The FCA confirmed it will be selecting certain MTFs and OTFs for a further review of their operational resilience via the FCA's operational resilience self-assessment tool, "ORQuest".

The FCA highlights its intention to continue engagement with trading venues through market engagement and firm-specific work programmes, to determine how they are developing systems and controls to maintain an orderly market in an environment of evolving technology and increased risk, with a focus on volatility management. 

Finally, the FCA reiterated its commitment to assisting firms in launching innovative financial products and services, and its desire for engagement from trading venues in implementing market reform.

Banking and Prudential

4. ECB: Supervisory priorities for 2025 – 2027  

On 17 December 2024, the ECB published its supervisory priorities for the next 3 years, which involves:

• a focus on banks' resilience to immediate macro-financial threats and severe geopolitical shocks. The EBA is conscious that current geopolitical risks can result in adverse macro-economic financial developments and pose a threat to banks' operational resilience. Various initiatives, such as the 2025 EU-wide stress test coordinated by the EBA, will be implemented to raise awareness and bolster banks' resilience to such shocks;
• ensuring banks remediate material shortcomings identified by supervisors in a timely manner. For example, the ECB highlighted that compliance with supervisory expectations regarding the management of ESG risks will remain a priority; and
• ensuring banks tackle challenges stemming from digital transformation and new technologies. The ECB calls on banking supervisors to develop targeted strategies in order to better understand banks' responses to the structural trends shaping the future of their sector, such as digital platforms, strategic partnerships and the use of AI.

Fund Management

5. ESMA: Q&As: AIFM and CCP margin requirements 

On 10 January 2025, ESMA published new Q&As in relation to the permission of AIFMs to delegate portfolio or risk management to non-supervised undertakings established outside of the EU, and AIFMs safekeeping of client money. 

As an overview, the Q&As clarify that AIFMs: (i) are not permitted to delegate portfolio or risk management to non-supervised undertakings established outside of the EU; and (ii) are not permitted to hold client money, and this position will not change under the extended scope of ancillary services under Article 6(4)(b), as amended by the revised AIFMD.

6. ESMA: Consultation Paper: Draft RTS on open-ended loan-originating AIFs under AIFMD 

On 12 December 2024, ESMA published a consultation paper on draft regulatory technical standards (RTS) on open-ended loan originating AIFs under the revised AIFMD.

The draft RTS introduce harmonised rules on loan originating funds to provide a common implementing framework for AIFMs and national competent authorities (NCAs), by determining the elements and factors that AIFMs need to consider when demonstrating to NCAs that the loan originated AIFs they manage can be open-ended. Under the revised AIFMD, loan-originating AIFs shall be deemed closed-ended unless the AIFM can demonstrate to the NCA that its liquidity risk management system is compatible with its investment strategy and redemption policy.

Reponses to the consultation paper are to be provided by 12 March 2025. ESMA intends to publish the finalised draft RTS by Q3-Q4 2025.

Senior Managers and Governance

7. FCA and PRA: Consultation Papers: Operational resilience, outsourcing and third party reporting (CP24/28 and CP 17/24) 

On 13 December 2024, the FCA and PRA published parallel consultation papers CP24/28 and CP17/24 (see links here and here, respectively) on operational incidents, outsourcing and third party reporting.

The consultation papers propose amendments to firms' operational resilience frameworks by, among other amendments: (i) introducing a specific definition for "operational incidents"; (ii) establishing reporting frameworks, including introducing a requirement for firms to submit reports on incidents that meet certain thresholds even if they have not breached the impact tolerances of any affected business services; and (iii) and introducing reporting requirements in relation to material third parties.

The FCA intends to publish the finalised rules by Q2 2025, and the PRA intends to implement the proposals by Q2 2026.

Financial Crime

8. FCA: Statement: Markos Markou v The Financial Conduct Authority (FCA appeal)  

On 17 December 2024, the FCA published a statement that it had successfully appealed the Upper Tribunal's decision to the Court of Appeal in respect of Mr. Markou, Director and Chief Executive of Financial Solutions (Euro) Limited.

In 2021, the FCA published a Decision Notice seeking to impose a £25,000 fine on Mr Markou and to ban on him from working in financial services. Mr Markou referred this matter to the Upper Tribunal, who requested that the FCA reconsider the ban and directed that a fine should not be imposed. The Court of Appeal found that that the ban was appropriate, and determined a lesser fine of £10,000.

Retail Services

9. FCA: Consultation Paper: A new product information framework for Consumer Composite Investments (CP24/30)

On 19 December 2024, the FCA published a consultation paper (CP24/30) on the Consumer Composite Investments (CCI) regime, which is set to replace the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the Undertakings for Collective Investment in Transferable Securities (UCITS) disclosure requirements.

The CCI regime will apply wherever a consumer composite investment is made available to retail investors. The significant changes from PRIIPs include:

• Formatting: removal of the rigidly templated format, to allow firms more freedom in designing product information, and which the FCA hopes will help capture consumers' attention at critical decision points; and
• Information: targeted amendments to prescriptive methodologies, to prevent presentation of inappropriate information to consumers.

Responses to the consultation can be submitted before 20 March 2025. The FCA is welcoming views on how best to design an outcomes-focused regulatory regime for CCIs that is fit for the future.

The CCI will come into force when the related policy statement is published, or shortly thereafter, with a substantial transitional period, which is proposed to be 18 months for the transition from existing PRIIPS key information documents and UCITS key investor information documents. 

10. FCA: Press Release: two-third of young investors take less than 24 hours to make investment decisions 

On 18 December 2024, the FCA published a press release detailing its research findings in relation to the investment decisions made by young investors. The survey polled 2,000 UK investors aged 18 to 40, and the key findings were that: 

• a quarter of young investors admit they make investment decisions impulsively to keep up with current trends;
• 66% of 18-40 year-old investors spend less than 24 hours deciding on an investment, and 14% finalise their decision in under an hour. Only 11% take more than a week to decide if an investment is right for them;
• £550 is the average spend on hyped investment products; and
• despite 63% of people believing that hype meant that something was a good investment opportunity, two in five investors regret purchasing a hyped investment product.

11. R (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd: Motor finance discretionary commission arrangement

On 17 December 2024, the Administrative Court published its judgment in R (Clydesdale Financial Services Ltd) v Financial Ombudsman Service Ltd [2024] EWHC 3237 (Admin).

The High Court dismissed the claim for judicial review of the decision of the Financial Ombudsman Service (FOS) issued in January 2024, relating to a discretionary commission arrangement (DCA) in a motor finance agreement. The Court noted that the decision and its judicial review judgement are of concern to the motor dealing and motor finance industry, the FCA and consumers, potentially affecting "thousands of other cases".

The FCA published a statement in response to the High Court decision, noting that the Court had correctly interpreted the FCA's rules and the Consumer Credit Act 1974 in deciding that the lender and car dealer did not meet the standards in place at the time. The FCA is currently reviewing the use of DCAs in the motor finance market before its 2021 ban. 

The FCA has also proposed to extend the time that firms have to respond to motor finance complaints where a non-discretionary commission arrangement was involved. 

12. FCA: Portfolio letter: Strategy for CFD providers and distributors 

On 13 December 2024, the FCA published a portfolio letter setting out its strategy for providers and distributors of contracts for differences (CFDs) over the next two years. 

The FCA aims to reduce potential harm from CFDs when they are marked inappropriately or with inadequate controls. Its  planned work includes the following:

• Consumer Duty: testing how the Duty has been embedded by CFD providers and distributors and conducting a multi-firm review focusing on price and value outcome;
• Market integrity and market abuse: carrying out work to improve the identification of market abuse, including firm-specific targeted reviews of surveillance arrangements focussed on transaction reporting;
• Reducing harm from firm failure: assessing firms' implementation of the Investment Firms Prudential Regime (IFPR) and ensuring consumers' client money is appropriately segregated;
• "Halo" firms: scrutinising loss-making, largely inactive firms that meet minimum prudential requirements;
• Diversification: ensuring fast-growing firms hold adequate capital and liquidity, including whether systems and controls are commensurate with growth;
• Distributors and appointed representatives: conducting business model analysis on all remaining distributors; and
• Operational resilience and outsourcing: expecting firms' internal capital adequacy and risk assessment processes and documentation to adequately reflect the additional complexities of outsourcing arrangements.

CFD firm Chief Executives are expected to discuss the letter with their senior management and agree next steps by 31 January 2025.

13. FCA: Publication: Complaints and Root Cause Analysis

On 11 December 2024, the FCA published its findings into firms' approaches to complaints and root cause analysis (RCA).

The FCA identified as good practice the establishment of processes for identifying the trends and themes of complaints, and the ability to evidence escalation routes and accountability so that all business personnel knew where to send complaints management information. 

The FCA identified as areas for improvement the need for a more granular approach to capturing complaints management information so that firms can understand outcomes for different groups of customers. The FCA also considered more firms needed to both act on the data gathered and analyse the impact of their actions. 

The FCA does not expect the report to be prescriptive in terms of what RCA must look like, and does not replace the standards expected under the Duty itself. The FCA is sharing examples of good and poor practice to assist firms in deciding what works best for them in their implementation of the Duty.

14. FCA: Publication: Consumer Duty Board Reports

On 11 December 2024, the FCA published a report of its findings following a review of the first annual Consumer Duty board reports from 180 firms.

The FCA set out five key aspects of good reports that it reviewed, these include: clear outcomes focus, good quality data, analysis of different customer types, clear processes for production of the report and a focus on culture throughout the firm.

Further, the FCA set out five areas for improvement, which include: better data quality, a comprehensive view across distribution chains, analysis of different customer types, challenge from the board and taking effective action.

The FCA does not expect the report to be prescriptive in terms of what board reports must look like, and does not replace the standards expected under the Duty itself. The FCA is sharing examples of good and poor practice to assist firms in deciding what works best for them in their implementation of the Duty.

15. FCA: Publication: Consumer Duty Focus Areas 

On 9 December 2024, the FCA published its priorities under the Consumer Duty for the remainder of 2024/2025. These can be summarised in the four following focus areas:

• Embedding the Consumer Duty and raising standards: understanding how firms are improving consumer outcomes;
• Enhancing understanding of the price and value outcome: encouraging firms to use robust analysis to assure themselves and the FCA that they are offering fair value, and identify and take action where they are not;
• Tackling areas of existing concerns in specific sectors including: focusing on retail banking, consumer finance, payments and digital assets, consumer investments, general and life insurance and sustainable finance; and
• Realising the benefits of the Consumer Duty: the FCA will publish next steps regarding its Call for Input (published in July 2024) which asked firms where the FCA can use the Duty to simplify wider requirements on retail firms.

The FCA hopes its publication will be helpful to show their Consumer Duty areas of focus in one place for affected stakeholders to review.

16. Supreme Court: Case pages

On 22 November 2024, the UKSC updated the case pages of three ongoing motor finance disputes.

The cases of Hopcraft and another v Close Brothers Limited (case page), Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (case page), and Wrench v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance (case page) will be heard together between 1 and 3 April 2025. 

Digital Finance and Fintech

17. FCA: Updated webpage: Cryptoasset AML / CTF regime

On 8 January 2025, the FCA published an update to its webpage with the latest statistics regarding applications for the registration of a cryptoasset business, as at 1 January 2025. In the previous 12 months, 29 applications were received, of which: 4 (12%) were registered; 9 (27%) were rejected; 17 (52%) were withdrawn; and 3 (9%) were refused.

18. ESAs: Report: Dry run exercise relating to registers of information under DORA (ESA 2024 35)

On 17 December 2024, the European Supervisory Authorities (ESAs) published a report of key findings from its dry run exercise of financial entities' reporting processes under the Regulation on digital operational resilience for the financial sector ((EU) 2022/2554) (DORA) relating to their registers of information. 

A key finding was that, out of the 947 registers that passed the data integration checks and were analysed, 6.5% successfully passed all data quality checks, while 50% of the remaining registers failed less than five data quality checks. ESMA observed that this was expected given the "best effort" nature of the exercise.

ESMA encourages all financial entities to carefully consider these findings to help them be better prepared to report the registers in 2025. 

19. ESMA: Press release: Last MiCA policy documents 

On 17 December 2024, ESMA published a press release announcing that the last policy documents to get ready for MiCA have been released.

The policy documents include regulatory technical standards on market abuse, guidelines on reverse solicitation, guidelines on suitability, guidelines on crypto-asset transfer services, guidelines on qualification of crypto-assets as financial instruments and guidance on the maintenance of systems and security access protocols. 

The guidelines mentioned in the press release will be translated and published on the ESMA website, and will apply three months from publication, and the final reports with the draft RTS have been submitted to the European Commission for adoption.

20. EBA: Report: Tokenised deposits 

On 12 December 2024, the EBA published a report on tokenised deposits (the Report). The aim of the Report is to facilitate awareness of tokenised deposits, highlighting the potential benefits and challenges.

The Report follows a survey of competent authorities and desk-based research analysing tokenisation of deposits by credit institutions. The analysis identified only one live tokenised deposit in the EEA, although indicates that there is evidence of growing appetite from credit institutions to tokenise deposits.

The EBA concluded that there was no immediate requirement to adjust the regulatory and supervisory framework due to the lack of market presence, although highlights that the industry and competent authorities will need to adopt a convergent approach to crypto asset classification. In this regard, the Report suggests indicative characteristics that may be used to distinguish tokenised deposits from e-money tokens issued under MiCA.

The EBA intends to take steps in 2025 to promote ongoing monitoring and dialogue between competent authorities and industry on tokenised deposits. 

Payments

No new entries.

ESG

21. EBA: Final guidelines: Management of ESG risks 

On 9 January 2025, the EBA published a final report setting out its guidelines on the management of ESG risks (the Guidelines).

The Guidelines specify requirements regarding internal processes and ESG risk management arrangements that should be adopted in accordance with the Capital Requirements Directive. They set out the content of plans to be prepared by institutions with a view to monitoring and addressing the financial risks stemming from ESG factors. These plans should be consistent with transition plans disclosed under other pieces of EU legislation. 

The Guidelines will apply from 11 January 2026 except for small and non-complex institutions where they will instead apply at the latest from 11 January 2027.

Other

22. Advertising Standards Authority: Ruling on Lloyds Bank plc 

On 18 December 2024, the Advertising Standards Authority (ASA) published its ruling regarding a poster and three paid-for LinkedIn posts for Lloyds. A detailed description of the poster and adverts can be found in the ruling, but they broadly contained natural world imagery or claims around Lloyds' partnerships relating to energy transition and with Projects for Nature. 

Adfree Cities argued the poster and adverts were misleading because they omitted significant information about Lloyd's contribution to carbon dioxide and greenhouse gas emissions. Lloyds argued that the poster made no claims in respect of the environment or social credentials of the business of Lloyds, that two of the ads were factually accurate, clear and intelligible and that the final ad was factually accurate and substantiable. 

The ASA found that only one of the three adverts breached the CAP Code, which requires that the basis of environmental claims be clear, and states that unqualified claims could mislead if significant information was omitted. As the advert made wider claims about Lloyds' financing of clean and renewable energy, and did not contain qualifying information, the ASA ruled that it omitted material information and was likely to mislead.