February 2025
Our new issue of UK Regulatory Radar brings you the latest industry and regulatory updates impacting financial service providers in the UK.
Click below for our latest insights and see the ‘Further updates’ section for other sector-specific developments.
Banking
Implementation of Basel 3.1: The PRA, in consultation with HM Treasury, has announced a delay to the UK implementation of Basel 3.1 by one year until 1 January 2027. This allows more time for greater clarity to emerge about plans for its implementation in the United States. Further updates will follow on the interactions between timelines for Basel 3.1 and the new regime for Small Domestic Deposit Takers (including the Interim Capital Regime). The delay now puts the UK even further behind the EU’s implementation, with most of the CRR requirements applying from 1 January 2025 and FRTB from 1 January 2026.
Supervisory priorities for UK Deposit Takers and International Banks: On 21 January, the PRA wrote to the CEOs of UK Deposit Takers (UKDTs) and International Banks outlining its supervisory priorities for 2025. The priorities are broadly consistent with those set out in 2024. Robust governance, risk management and controls are expected and there is a specific call-out to consider material weaknesses due to culture. The PRA notes that many firms are falling short on counterparty credit risk and that credit risk management and measurement must be adaptable to changing conditions. Focus will remain on exposures to NBFIs and other vulnerable/high risk sectors. The submission of timely, complete and accurate regulatory returns, improved data aggregation, financial resilience including effective balance sheet, funding and liquidity management, and focus on operational resilience including cyber resilience are also on the 2025 agenda.
Firm-specific capital communications: The PRA has published PS2/25 (following CP9/24), setting out final policy and rules to simplify the content and process of firm—specific capital communications used to set Pillar 2A, the systemic buffers and the Additional Leverage Ratio Buffer (ALRB). The final policy is as set out in CP9/24, with one minor change that has “no meaningful effect on the policy”. The final policy is as set out in CP9/24, with one minor change that has “no meaningful effect on the policy”. PS2/25 has no impact on capital requirements.
Insurance
Life insurance stress test: The PRA has launched its 2025 Life Insurance Stress Test (LIST) 2025 to assess the resilience of major UK life insurers against a set of adverse scenarios. The LIST is a biennial exercise, and participating firms will be required to submit their results by 16 June 2025 using the provided templates and guidelines. The PRA aims to publish individual firm results for the core scenario and aggregated sector results in Q4 2025. Read KPMG article for more detail.
Capital Markets and Asset Management
Accelerated Settlement (T+1): The UK Accelerated Settlement Taskforce Technical Group has published its final report recommending that the UK move to T+1 settlement on 11 October 2027. The report recommends 12 ‘critical’ and 27 ‘highly recommended’ actions to facilitate a successful transition to T+1. HM Treasury has welcomed the report and will set out its response shortly. Concurrently, the European Commission is also proposing 11 October 2027 as an appropriate date for the EU to move to T+1 settlement and has proposed an amendment to CSDR to facilitate this.
Wholesale brokers supervisory strategy: The FCA has outlined its new supervisory strategy for wholesale brokers. Its strategic focus for the next two years will be on broker conduct, culture, business oversight and financial resilience. There is a stronger focus on conduct and culture in this letter than the other wholesale strategy letters that the FCA published last month.
Commodity Derivatives Regulatory Framework: The FCA PS25/1 aims to strengthen the resilience of the UK commodity derivatives markets. Measures include reducing the scope of contracts covered by the position limits regime but increasing the available exemptions from the regime for firms. It also transfers the responsibility of setting position limits to trading venues. The regime will fully apply from 6 July 2026 but transitional measures will start in March 2025. To learn more, please listen to this podcast from KPMG in the UK’s commodities team.
Further changes to the public offers and admission to trading regime and listing rules: In July 2024, the FCA consulted upon the new prospectus regime. It has now issued further consultations. CP25/2 proposes changes to the rules to align disclosure requirements for low denomination bonds with those for higher denominations to make capital raising easier for issuers. The FCA is also proposing changes to the UK Listings Rules to make them more efficient for companies issuing further securities. CP25/3 outlines its proposals for the implementation and operation of the new public offer platform (POP), including how the FCA intends to authorise firms seeking to operate POPs, its intended supervision approach for these firms and a potential transitional regime. The POP regime facilitates companies making public offers of securities to a broad range of investors outside public markets when raising more than £5m. Firms likely to be interested in becoming POP operators are crowdfunding operators and corporate finance firms.
Pension fund clearing exemption: Following the responses to its call for evidence on the pension fund exemption from obligations to clear certain derivatives contracts (under UK EMIR), HM Treasury has decided that the exemption should be maintained for the long-term. It will now take forward legislation to ensure that the exemption does not expire on 18 June 2025 as currently scheduled and to remove any further time limit on the exemption.
Money laundering through markets (MLTM): The FCA has updated its assessment of MLTM based on further supervisory work and discussions with key stakeholders. The FCA found there has been progress but identifies areas where firms need to improve to protect against money laundering. These include better estimation of the risks of money laundering firms are exposed to, less reliance on others in the transaction chain to complete appropriate due diligence checks on customers and more information sharing between firms. The report includes examples of good and poor practice on enhancing systems, controls and training as well as detailed areas of focus for firms.
Payments
Updated strategy 2025 — 2027: The PSR has published an updated strategy outlining its plans to deliver competition, innovation and growth in the payments sector over the next two years. The strategy outlines PSR's three core commitments: completing work on projects underway, progressing work upgrading payment systems, and sharpening focus on competition and innovation. Key deliverables include implementing the commercial model for variable recurring payments (VRP) and ensuring the appropriate regulation of card fees. The PSR intends to further enhance its innovation capability, removing unnecessary barriers to payments innovation.
Supervisory strategy for payment firms: The FCA has written to its payment portfolio firms outlining its key priorities. Despite acknowledging improvements by some firms in areas such as governance arrangements, the FCA remains concerned about ongoing risks to consumers and the integrity of the payments financial system. Consequently, the FCA has identified three essential outcomes for payment firms to achieve good customer outcomes: (i) effective competition and innovation, (ii) firms not compromising financial system integrity and (iii) safeguarding customers' money. Although not identified as a specific outcome, the FCA emphasises the importance of strong governance, oversight and leadership in ensuring the delivery of these outcomes. FCA cited that weaknesses in these areas are a root cause of many of the regulatory issues observed in the portfolio.
Next steps for open banking: The FCA and PSR have issued a joint statement outlining the next steps for open banking in the UK, with a particular focus on the implementation of VRPs. These allow customers to securely connect authorised payment providers to their bank accounts using open banking, enabling the initiation of recurring payments. This development is an important step towards enhancing open banking for e-commerce, as it empowers consumers to take greater control of their regular payments. Open Banking Limited has been tasked with establishing an independent operator to coordinate and facilitate the implementation of VRPs.
Compliance monitoring framework: The PSR has published a new compliance monitoring framework outlining its approach, expectations and approach to non-compliance. The framework has been developed in response to several important new regulations coming into force (e.g. APP reimbursement), which have increased the PSR's need to identify and manage non-compliance. The PSR's approach is underpinned by three principles (i) Proportionate and risk-based, (ii) Acting quickly, and (iii) Clear, reciprocal engagement.
APP scams reimbursement claims management system: The PSR has confirmed its intention to consult on rules requiring the use of Pay. UK's reimbursement claims management system (RCMS). The consultation is scheduled for April 2025, with any resulting rules anticipated to be implemented in late 2025. Following a previous consultation, the PSR deferred a decision on these rules, committing to re-consult once the APP reimbursement rules are in effect. This pre-announcement aims to inform stakeholders of the upcoming consultation and encourage broad participation to ensure an effective outcome.
Cross Sector
Retail Conduct
Supervisory strategy for claims management companies: The FCA has written to the CEOs of its Claims Management Company (CMCs) portfolio firms outlining priorities for the next two years. While recognising some improvements, the FCA notes areas where firms are still falling short of its expectations. The FCA’s priorities are: embedding the Consumer Duty, service standards, personal injury and lead generation. The FCA also highlights a number of issues it expects CMCs to pay particular regard to including misleading advertising (see financial promotions update below), inappropriate sourcing of customers, poor attitude towards regulatory obligations and approaches to complaints submission.
Case fees for professional representatives: The FOS has confirmed the introduction of case fees for complaints referred to the FOS by professional representatives (PRs) e.g. law firms and CMCs. From 1 April 2025, PRs will only be entitled to bring ten cases each financial year for free, with every additional case charged a fee of £250. Where cases are upheld, the fee will be reduced to £75. Where a PR’s complaint is not upheld or is withdrawn, the respondent firm will pay a reduced case fee of £475. These changes are intended to make funding arrangements fairer and encourage PRs to consider the merits of complaints before referral, and to ensure referred complaints are better evidenced.
Supervisory strategy for mortgage intermediaries: The FCA has written to the CEOs of the mortgage intermediaries portfolio firms setting out its supervisory priorities for the portfolio over the next two years. The FCA’s strategic focus will be on the suitability of mortgage advice, high pressure selling, value for money, and the quality of financial promotions. Additionally, the FCA will address conditional selling and the oversight of Appointed Representatives.
Supervisory strategy for CRA and CISPs: The FCA has written to the CEOs of credit reference agencies and credit information service providers (CRA & CISP) setting out its supervisory priorities for the portfolio over the next two years. The FCA’s strategic focus will be on embedding the Consumer Duty, operational resilience, cyber resilience, financial resilience and (v) addressing actions stemming from the Credit Information Market Study (CIMS).
Financial promotions 2024: The FCA has published 2024 financial promotions data which shows a significant increase in FCA interventions in response to non-compliant financial promotions, with nearly 20,000 amended or withdrawn, a 97.5% increase compared to 2023. The financial promotions of CMCs accounted for 46% of the total amended or withdrawn. The report also highlights action taken in relation to finfluencers, buy-now-pay-later promotions and unauthorised firms, with 20 finfluencers interviewed under caution and 38 alerts issued about unlawful promotions on social media.
Operational Resilience
Operational incident, outsourcing and third-party reporting: The BoE, PRA and FCA are consulting until 13 March on joint rules to set a framework for high-quality, timely and consistent reporting of the operational incidents and third-party arrangements that may have the greatest impact on financial stability. The proposals include a clear definition of operational incidents and require firms to submit standardised reports on incidents that breach one or more specific thresholds.
Digital Finance and Innovation
Impact of AI: The UK Parliament Treasury Committee has launched a Call for Evidence on the impacts of the increased use of AI in banking, pensions and other areas of financial services. In particular, the Committee is seeking to understand how firms can utilise AI whilst still protecting consumers against potential risks. Evidence is requested from a range of stakeholders including the finance industry, the AI sector, consumers and experts.
ESG and Sustainable Finance
PRA Climate Change Adaptation Report: The PRA has published its latest Climate Change Adaptation Report, summarising key work performed to date, as well as its latest views on firms' progress in managing climate-related risks. The report flags the PRA's planned update of the expectations in SS3/19, with a consultation expected in H1 2025 followed by an updated supervisory statement. The Climate Financial Risk Forum (CFRF) will continue to provide a forum for industry to share experiences and build on existing guidance to help firms meet revised supervisory expectations. The BoE continues to assess the potential build-up of systemic risks relating to climate change.
FCA Adaptation Report: The FCA has also published its report highlighting climate adaptation risks for financial services firms. The FCA notes that the insurance sector faces increased claims due to extreme weather events and highlights concerns about the future affordability and availability of insurance. Banking adaptation risks include reduced mortgage lending due to reduced flood insurance availability and increased defaults in commercial lending following climate-related economic downturns. Investment risks involve volatility in agricultural markets and water shortages impacting companies. The response to climate adaptation has involved FCA-mandated climate risk disclosures and industry collaboration through the CFRF, but there continue to be barriers around data availability, insurance underwriting approaches and allocation of capital.
Useful information:
The KPMG Regulatory Barometer helps firms identify key areas of pressure across the evolving UK and EU regulatory landscape and measure the impact of the likely change
The KPMG Financial Services Regulatory Insight Centre monitors and tracks the evolving regulatory landscape. If you would like to discuss any of the topics covered in more detail, please contact a member of the team below:
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