Financial services update May 2025
This month, the Financial Conduct Authority (FCA) has announced a series of regulatory updates aimed at simplifying compliance and supporting better outcomes for firms and consumers.
Key developments include: initial actions to reduce the complexity and administrative burden under the consumer duty regime; proposals to streamline capital requirements for investment firms, particularly around Common Equity Tier 1 (CET1) capital; and a quarterly consultation addressing updates to training and competency standards, as well as restoring safeguards in related party transaction rules. Together, these changes reflect the FCA’s ongoing commitment to more proportionate, practical regulation. Read more in our update below.
Consumer duty
The FCA has released comments on areas for action following a review of feedback from firms around the complexity and work involved in implementing new consumer duty regulations (FS25/2: Immediate areas for action and further plans for reviewing FCA requirements following introduction of the Consumer Duty).
A call for input in July 2024 generated 172 responses and extensive stakeholder engagement. Feedback from firms largely supported simplification, favouring targeted amendments over a wholesale review of the handbook. Many firms found the implantation of the consumer duty rules to be a significant project and have devoted large amounts of resource to its completion.
The simplification programme focuses on four key areas: reviewing foundational rules; modernising disclosure requirements to enhance customer communication; reducing unnecessary administrative tasks; and streamlining outdated or overly complex regulations. These actions aim to foster greater flexibility for firms, promote innovation and support vulnerable customers. Additionally, the FCA seeks to improve predictability for firms and boost regulatory efficiency, ensuring high-quality customer outcomes while reducing compliance burdens.
Continued engagement with stakeholders is planned to refine the initiative, including a summit with key industry and consumer representatives. The full programme update will be released in September 2025.
Definition of capital for investment firms
Before the implementation of the investment firm prudential requirements (IFPR) via the MIFIDPRU sourcebook, many firms were subject to the IFPRU rules and the EU Capital Requirement Regulations (CRR). These were a very complex set of rules, designed primarily for large institutions but catching much smaller firms within its scope. When the UK left the EU, it adopted these rules and they became the UK CRR.
The UK CRR, which implemented the Basel Committee’s banking standards, now forms part of UK law. However, many of these requirements are unnecessarily complex for FCA investment firms. Elements of MIFIPRU still refer to the UK CRR. The detailed requirements in the UK CRR were designed for banks’ more complex capital structures. While banks often use sophisticated own funds instruments requiring complex adjustments, investment firms typically have simpler capital structures based on ordinary shares and retained earnings. When the IFPR was released, it cross-referenced various sections to the UK CRR which means firms had to navigate between MIFIDPRU and the UK CRR. The proposals aim to simplify the requirements and terminology for investment firms.
The proposals contain simplification measures, as well as changes to the Common Equity Tier (CET) 1 Capital framework.
The FCA proposes to streamline the approach to the inclusion of interim profits in CET1 capital by moving from a permission to a notification-based system. Under the proposals, firms can include these profits before formal year-end decisions, provided they meet the other existing requirements. For example, this includes verification by persons independent of the firm who are responsible for auditing the accounts. The verification must confirm that profits have been evaluated in line with applicable accounting standards. When including interim profits in CET1, firms will still be required to deduct foreseeable charges and dividends on a prudent basis.
Further detail of the proposals can be found here, and firms are invited to feed back by 12 June 2025.
Quarterly update
In the FCA’s CP25/4, the FCA consults on such topics as amendments to the training and competency sourcebook and the UK listing rules for close end investment funds.
Updates are proposed to the qualifications requirements for ensuring employee competence within this sector. The FCA engaged with qualification providers and is proposing several updates based on their feedback. These include updating qualification names and activity numbers where applicable, moving discontinued qualifications to a separate section, and updating the names of some qualification providers. These changes aim to ensure the table remains accurate and aligned with current offerings.
The FCA is proposing to amend the UK listing rules (UKLRs) to reinstate a previously established requirement that related parties and their associates be excluded from voting on relevant related party transactions. This rule, originally found in LR 11.1.7R(4), was unintentionally omitted during updates but remains consistent with the FCA’s intended policy approach. In PS24/6, the FCA confirmed the ongoing requirement for shareholder votes and circulars for significant related party transactions – those meeting a 5% class test threshold. The omission is being addressed through an amendment to UKLR 11.5.5R, aligning it with UKLR 11.6.6R(5), which already implicitly supports this policy by requiring disclosure that related parties will not vote, and that their associates will also refrain.
To explore how these updates may affect your business, contact our experienced Financial Services team here.
