UK Regulatory Radar January 2025

January 2025

Our new issue of UK Regulatory Radar brings you the latest industry and regulatory updates impacting financial service providers in the UK. This edition reflects the busy run — up to Christmas as regulators cleared the decks before the end of 2024.

Click on the pods below for our latest insights and see the ‘Further updates’ section for other sector — specific developments.

• Banking
• Insurance
• Capital Markets and Asset Management
• Payments
• Cross Sector
• Retail Conduct
• Pensions
• Operational Resilience
• Digital Finance

Strong and Simple — The PRA has now published PS19/24 on rules relating to the definition of an Interim Capital Regime (ICR) firm, which were previously issued as ‘near final’ in PS17/23 and PS9/24. PS19/24 outlines the mechanism by which firms can join the ICR and thereby remain under the current capital regime in the period between implementation of the Basel 3.1 standards (1 January 2026) and the new capital regime for Small Domestic Deposit Takers (SDDTs).

BoE approach to stress testing — The BoE has also published its updated approach to stress testing the UK banking system from 2025 onwards. A Bank Capital Test will now be carried out every other year, replacing the annual cyclical scenario exercises. In the intervening years, supplementary stress testing (e.g., desk — based exercises) will be used where appropriate. Exploratory exercises will continue to be used as a means of assessing other risks, such as structural and emerging risks. The approach has been updated to reflect the material increase in levels of bank capital since the global financial crisis and the evolving nature of risks.

RAF reporting and disclosure dates — After consulting on changes to the reporting and disclosure dates for the UK Resolvability Assessment Framework (RAF), the PRA has confirmed that the timing of future submissions will no longer be fixed to two — year cycles. Instead, they will be on a periodic basis, with the next two reporting dates set for the first Friday in October 2026 and the second Friday in June 2027.

PRA supervisory priorities — The PRA has published its annual 'Dear CEO' supervisory priorities letter for insurers. The priorities for 2025 are: Solvency UK implementation and other policy reforms, bulk purchase annuity (BPA) market developments including funded reinsurance, cyclicality in the general insurance market, life insurance stress test, liquidity resilience, solvent exit planning, operational resilience, and climate change. Two new elements are the confirmation the PRA is going ahead with the Matching Adjustment Investment Accelerator and an upcoming consultation in H2, jointly with the FCA, on policy relating to management of ICT and cyber risks. 

PRA postpones Dynamic General Insurance Stress Test — The PRA has announced the postponement of the dynamic general insurance stress test (DyGIST) launch. This exploratory exercise, which is designed to assess both industry resilience and risk management and inform our supervisory response following an adverse scenario, is now expected to commence in May 2026. Recognising the burden on certain firms of carrying out two stress tests (the life and general insurance stress test exercises) in the same year, the PRA intends to carry out these exercises in alternate calendar years going forward. The PRA will now engage with the industry on DyGIST from September 2025.

Solvent exit planning for insurers — The PRA has finalised its policy on solvent exit planning for insurers, releasing PS20/24 and SS11/24. Insurers must produce a solvent exit analysis (SEA) highlighting, amongst other things, solvent exit actions, indicators and potential barriers and risks. They are also expected to produce a solvent exit execution plan (SEEP) when there is a reasonable prospect that the firm may need to execute a solvent exit. Key changes to the final policy include removal of the one — month timing expectation for the solvent exit execution plan (SEEP), exclusion of Lloyd’s managing agents from the scope and a delayed implementation date of 30 June 2026 (previously Q4 2025). For more information, see the article above.

PRA consultation on liquidity reporting — The PRA is consulting (CP19/24) on significantly enhancing liquidity reporting for large insurers. This comes after recent market stresses identified ‘critical gaps’ in liquidity reporting to the PRA, hampering supervisors’ ability to assess firms’ liquidity exposure and responses in a stress scenario. The new rules are a step change in expectations for impacted firms and are expected to come into effect on 31 December 2025. For more information, see the article above.

PRA proposes to streamline standard formula reporting — Also in CP19/24, the PRA proposes to remove the requirement for all life firms with full or partial internal models to submit annual Solvency Capital Requirement (SCR) information calculated using the Standard Formula (SF). While the formal application date for this change is 31 December 2025, the PRA is enabling immediate application of the benefits via a temporary delay in submission deadline for firms’ YE2024 SF SCR. To note, this only applies to life firms – general and composite insurers will need to continue to submit the relevant template (SF.01) for the PRA to monitor model drift.

Correction to standard formula mass lapse life underwriting risk rule — The PRA has announced a correction to PS15/24, concerning the standard formula mass lapse life underwriting risk rule. It has concluded that the reference to Regulated Activities Order (RAO) class III in rule SCR — SF 3B6.6(1) is in fact an error. The correct restatement should only require firms to apply a 70% stress for mass lapse life underwriting risk to RAO class VII(a) and class VII(b) business, not class III, where the additional requirements in the rule are met.

Reforming the PRIIPs and UCITS disclosure regimes (CP 24/30) — The FCA has set out detailed proposals for revamping disclosures required for retail investment products. The proposals would modernise and fundamentally change how firms provide information to customers, both in terms of content and format. Importantly, the FCA envisages less prescription and standardisation, other than in certain, specific areas, and aims to provide a simpler and more flexible approach for firms in terms of how, what and when they communicate with retail customers. The FCA will publish final rules later this year with a transition period to allow time for firms to adjust. A separate consultation on related changes to existing FCA handbooks and on the transition period will follow early in 2025.

MiFID Org Regulation — The FCA is consulting on proposals to transfer the rules in the MiFID Org Regulation into its handbook to coincide with its repeal by HMT. The FCA proposes to retain the substance of the requirements, providing continuity for firms. However, there is an interesting section that invites views on reforms for updating, simplifying or better tailoring the rules the UK market. The consultation follows HMT's policy paper on reforming the UK’s MiFID framework, published as part of announcements made around the Mansion House speech.

Consolidated tape (CT) updates — The FCA has started the process of appointing a bond CT provider with the publication of a concession notice setting out steps for running the tender process. The FCA aims to ensure that data on bond transactions, such as prices and volumes, executed on venue as well as over — the — counter, can be accessed in a cost effective way. The FCA has also published an independent report on the potential impacts of implementing a pre — trade equities consolidated tape (CT) in the UK and concludes that most market participants think there is a strong case for a CT with post — trade equities data although there are some concerns about including pre — trade data. It will now assess four different policy options with industry before consulting formally later in the 2025.

PISCES — the FCA is consulting on the regulatory framework for the Private Intermittent Securities and Capital Exchange System (PISCES), a new type of trading platform that will enable intermittent trading of private company shares using market infrastructure. PISCES will be established under the FMI Sandbox and will initially run for five years allowing the FCA to update the regime as it learns from its operation. PISCES will be for secondary trading only for institutional and professional investors, plus a limited subset of retail investors. There will be a tailored disclosure regime and UK MAR and transactions reporting requirements will not apply.

Benchmark Administrators — The FCA has published its third portfolio strategy letter to benchmark administrators. Supervisory focus areas are: corporate governance & oversight, data quality controls, benchmark controls, disclosures and operational resilience. The FCA is planning multi — firm reviews on governance, data input controls and the adequacy of end — to end benchmarks controls.

Contracts for Difference (CFD) providers — The FCA’s supervisory strategy for CFD providers focuses on: Consumer Duty, market integrity, reducing harm from firm failure, reducing the number of 'halo' firms, managing the risks of firms diversifying their product offerings, distributors and appointed representatives (ARs), and operational resilience and outsourcing. The FCA plans to conduct a multi — firm review focusing on the Duty’s ‘price and value’ outcome, considering whether firms are able to demonstrate consideration and delivery of fair value in areas including spreads, overnight funding charges and commissions.

Data reporting services providers (DRSPs) — The FCA has published its second supervisory strategy letter to firms providing the data reporting services of Approved Reporting Mechanisms (ARMs) and Approved Publication Arrangements (APAs) — DRSPs. The FCA's supervisory priorities are operational resilience, data quality systems and controls, communication with the FCA and the notification regime, and effective implementation of regulatory change. The FCA will review DRSPs’ procedures for submitting notifications to the FCA, focused on ensuring that firms have clearly established and appropriate thresholds for determining when a notification is required.

Trading venues — The FCA’s supervisory strategy for trading venues focuses on operational resilience, market orderliness, competition, innovation and growth, market reform and voluntary carbon markets. The FCA will review the implementation of operational resilience requirements and how venues are carrying out risk — sensitive member oversight and testing algorithmic trading to manage the risk of market volatility.

Custody and fund services supervisory strategy — The FCA has published its latest supervisory priorities for custody banks, depositaries and third party administrators. The priorities are largely unchanged compared to the previous letter, published in March 2022, with significant focus on themes relating to resilience and continuity of service. Boards of firms in this portfolio should examine the detail in this latest letter closely and ensure that they are comfortable that the various points outlined by the FCA have been addressed.

Bank of England FMI supervision — The BoE’s consultation on Fundamental Rules for FMIs is the first use of the BoE’s new power, under FSMA 2023, to make legally binding rules for UK CCPs and CSDs. The rules are similar to the FCA Principles of Business and the PRA's Fundamental Rules and will also apply to BoE — regulated UK payments systems and specified service providers. Concurrently, the BoE has updated its 2013 Approach to FMI supervision which outlines how the BoE works with other regulators (both nationally and internationally), its FMI risk model, how it supervises FMIs that form part of groups, different types of supervisory activity and its approach to new firms and non — UK FMIs. It has also published its annual report on its supervision of FMIs which outlines focus areas for 2025 including ongoing supervisory work on financial and operational resilience of FMIs, working with government to deliver the National Payments Visions, repealing and replacing UK EMIR for CCPs and supporting work to move to T+1 settlements.

2024 CCP Supervisory Stress Test Results — The BoE has published the results of its third UK CCP Supervisory Stress Test. The test focused on credit stress testing and CCPs’ resilience to the combination of a severe market stress and the default of two or more members. The results confirm the resilience of each UK CCP to a stress scenario similar to the worst — ever historical stress, combined with the default of the two members that lead to the largest mutualised losses.

CCP resolution — FSMA 2023 gave the BoE power to direct UK CCPs to address impediments to resolvability. The BoE has now issued a statement of policy outlining its approach and process for using this power. FSMA 2023 also introduced a new regime for resolving CCPs that are deemed to be failing or likely to fail. The regime consists of eight stabilisation options, one of which allows the BoE (as resolution authority) to ‘tear up’ (or terminate) one or more contracts cleared by the CCP in the affected clearing service. The BoE has also issued a final statement of policy on its approach to determining commercially reasonable payments to clearing members whose contracts are subject to a statutory tear up in CCP resolution.

Amendments to Specific Direction 3 — The PSR is consulting on proposed changes to Specific Direction 3 (SD3). SD3 sets the legal requirements for Pay.UK in procuring upgraded infrastructure for Faster Payments (FPS). The PSR proposes to remove the 1 July 2026 migration deadline and replace it with a new deadline that will not be before 2036. The PSR also proposes to include a regulatory ‘non — objection’ decision point around decisions to extend existing FP infrastructure contracts or enter into new ones. The PSR intends to consult on its changes to its 2021 Regulatory Framework to address risks to competition and innovation in Spring 2025.

Cross border interchange fees — The PSR has released the final report of its market review into cross border interchange fees (IFs). The review finds that the high level of fees is harming businesses, highlighting a lack of competition and steep cost increases without justification. Since 2021, Mastercard and Visa have raised their cross — border interchange fees fivefold from 0.2% to 1.15% for debit cards and 0.3% to 1.5% for credit cards. To address the findings, the PSR is consulting on proposals for an IF price cap. It proposes a phased implementation approach and a stage 1 price cap (should the phased approach be adopted) of 0.2%/0.3% debit and credit cards respectively (for outbound transactions). Stage 2 will establish a longer — term fee level.

Consumer Duty board report — The FCA has published the findings of its Consumer Duty board report review, setting out examples of good and poor practice and its expectations. The best reports were well structured allowing boards to easily scrutinise the key elements of the Duty. Five features of a good board report were identified: an outcomes focus, strong customer type analysis, a clear production process, good data quality and a Duty culture focus. However, firms may be disappointed that the FCA has not been clearer about its expectations on specifics such as the structure and length of the report. For more on KPMG in the UK’s view on approaching, designing, building and executing the annual assessment report to align to FCA expectations see here.

Consumer Duty areas of focus — The FCA has published its long — awaited Consumer Duty priority areas for 2024/25. Whilst the majority were well known, there are two new additions, (i) reviews of consumer finance digital journeys and (ii) clarity of foreign exchange (FX) pricing in payment services. The FCA has grouped all its initiatives into four areas: embedding the Duty, price and fair value, sector specific and benefits realisation. Perhaps demonstrating the relative infancy of firms’ embedding of the Duty, the last of these includes only one initiative — the FCA’s rule review.

Complaints and root cause analysis — The FCA has published the findings of its review of firms’ complaints and root cause analysis (RCA), setting out good and poor practice observed. It found that firms have established processes for carrying out RCA of complaints management information, however, there are areas for improvement such as the need for more granular data analysis across different customer types, ensuring actions are taken based on RCA insights and measuring the impact of those actions. With the Consumer Duty at its heart, this publication forms part of the growing body of information outlining the FCA’s Duty expectations.

Bereavement handling — The FCA has published findings from a review of insurers’ approaches to death claims. Although some firms provided additional support for claimants, many have more to do to meet expectations, particularly around the measurement, monitoring, and delivery of good service outcomes for customers. On average, firms took between 53 and 122 days to process an entire claim, 36 days for group life cover, 20 days for Over— 50 plans and 53 days for Whole of Life. However, measurement was inconsistent as few firms captured these figures. The FCA also identified failings relating to staff training, clarity of information about firm policies and the appropriateness of support to bereaved customers. The FCA has called on insurers to improve bereavement handling times by setting out best practice principles for firms to follow.

FCA supervisory strategy — credit reference and credit information portfolio: The FCA has written to the CEOs of credit reference agencies (CRAs) and credit information service providers (CISPs) setting out its supervisory strategy for the next two years. It identifies five priority areas of focus — embedding the Consumer Duty, operational resilience, cyber resilience, financial resilience and the Credit Information Market Study (CIMS). The FCA emphasises the importance of high standards, particularly in relation to operational and cyber resilience. Whilst successfully embedding all aspects of the Duty is important, the FCA raises specific concerns surrounding consumer support and understanding and price and fair value for the portfolio. Following publication of the CIMS final report, the FCA expects firms in the portfolio to support the delivery of the identified remedies.

Modernising the redress framework — The FCA and the FOS have issued a joint call for input on modernising the redress system to improve outcomes, better identify and manage mass redress events and identify improvements that ensure consistency in their interpretation of regulatory requirements. The paper proposes short term options, to be achieved through rule changes, and long — term options requiring legislative or other change. Options include the reintroduction of a two — step complaints handling process to reduce FOS referral rates, changes permitting the FOS to decline poorly evidenced complaints submitted by professional representatives (PRs) and, in cases of mass redress events, the option for the FCA to pause DISP complaint handling requirements (an approach recently applied to motor finance discretionary commission complaints).

FOS case fees for professional representatives — The FOS has published correspondence with the FCA Chair confirming its decision to introduce case fees for professional representatives (PRs) e.g. Law firms and CMCs. The implementation of this decision is subject to parliamentary approval of enabling legislation. The case fee approach is largely unchanged from the consultation with the only major change being the increase of FOS proposed case fees of £250 for PRs, reduced to £75 if the case is upheld, and, where a case is successfully upheld against a PR, the case fee for the respondent firm will be reduced by £175. In another change, the FOS will increase the number of free cases for PRs from three to ten. Timing of the change is subject to secondary legislation but the FOS considers that the fees could be applied from H1 2025.

FOS Strategic Plan 2025/2026 — The FOS is consulting on its plans for the next financial year. It has resolved to keep fees low despite predicting further increases in the demand for its services and will maintain case fees and levies at the reduced fee level set in 2024/25, estimating a saving of £70m for the industry compared to 2023/24. It intends to build on work to increase efficiencies and reduce the cost per case.

Financial inclusion Committee (FIC) — HMT has announced a new committee, tasked with developing and implementing interventions to support financial inclusion. Bringing together representatives from the third sector, industry, the FCA and government, the committee will focus on digital inclusion and access to banking services, savings, insurance, affordable credit and problem debt, financial education and capability.

Super — complaint — lending to small businesses — The FCA has published a statement on its findings on the use of personal guarantees (PGs) for business loans in response to a super — complaint from the Federation of Small Businesses. The review found that only a small percentage of regulated loans to small and medium — sized enterprises (SMEs) in the UK used PGs, and that there was no evidence of harm to guarantors. However, the FCA has identified two practices firms may wish to adopt to address the concerns raised — providing post — contractual information to guarantors and setting a minimum borrowing level below which PGs will not be required.

Mortgage Charter — The FCA has released the latest data from firms signed up to the Government’s Mortgage Charter. Introduced in 2023, the Charter contains several measures aimed at providing extra support to customers with residential mortgages, with signatories representing approximately 90% of the mortgage market. Findings indicate that the Charter is going some way to deliver on its objectives with a minimum of 1.7 million mortgage holders benefitting from one or more of the options since its introduction.

Perimeter Report — The FCA has updated its regulatory perimeter report. The report is relevant across financial services and is of fundamental importance as the perimeter defines what is, or is not, within the FCA's regulatory scope. Areas of focus or clarification include the boundary between warranty and insurance, concern that the discretionary trust structure is used for what should be classified as insurance and whether UK intermediaries carrying out activity on behalf of non — UK insurers may be breaching the UK regulatory perimeter

Publication of SWES final report — The BoE has published the outcomes of the first system — wide exploratory scenario (SWES) exercise. The report identified six key financial stability conclusions and associated next steps, relating to financial firms’ risk management and authorities’ policymaking and risk monitoring.

Enforcement transparency — The FCA is consulting on updated proposals on enforcement transparency, following significant pushback from the industry and concerns from the government about the impact of the initial approach. Revisions include extending the notice period before an announcement from one to ten days to allow firms time to make representations, and an updated public interest test that explicitly considers the potential negative impact on a firm and the potential for an announcement to seriously disrupt public confidence. The FCA has also clarified that it will not make proactive announcements of investigations that are on — going when the proposals come into effect.

FCA five — year strategy — In a recent speech, Emily Shepperd, FCA COO, outlined the FCA's new five — year strategy. There are four main themes: becoming a more efficient and effective regulator, tackling financial crime, building consumer resilience and supporting economic growth and innovation. To support the strategy, the FCA believes there needs to be a debate about appropriate risk appetite in the sector.

Financial Crime Guide update — The FCA has updated its Financial Crime guide focusing on areas where firms wanted additional guidance to clarify FCA expectations. The changes also reflect insights from supervisory work on financial crime and corporate updates from recent publications.

FCA quarterly consultation paper 46 (CP 24/26) — The FCA has proposed changes to various elements of its handbook across a wide range of regulations and topics including corrections and clarifications to the Sustainability Disclosure Requirements (SDR), consumer credit product sales data reporting, travel insurance signposting for consumers with pre — existing medical conditions, disapplying the compliance oversight SMF from insurance special purpose vehicles (ISPVs), updating references to the UK Corporate Governance Code and proposals for debt management firms to submit a CASS audit.

Defined Benefit covenant guidance — TPR has published updated covenant guidance for trustees of defined benefit (DB) pension schemes, aligned with the new DB funding code which came into force on 12 November 2024. The new guidance provides greater certainty on how TPR expects trustees to assess their employer covenant, embed good practice and encourage consistency across schemes. New elements look at areas including cash flow, reasonable affordability and covenant longevity. The guidance also features worked examples for covenant assessments that require the highest level of judgement from trustees. TPR expects trustees to use the guidance to review whether their existing covenant analysis is focused in the right areas and remains proportionate, especially where there has been a significant change in the scheme’s funding position in recent years.

Operational Incident and Third — Party Reporting: The FCA is consulting (CP24/28) on reporting operational incidents and material third — party arrangements. The consultation, which closes in March, includes detailed reporting tables.

UK Cryptoasset regulation — The City Minister confirmed that the government intends to proceed with the majority of existing plans for a regulatory regime for cryptoassets. However, actions around stablecoins and unbacked cryptoassets will now be combined into a single phase rather than being dealt with individually and there no longer appears to be a viable use case for bringing stablecoins within UK payment regulations.

FCA Crypto Roadmap — the FCA has issued a Crypto Roadmap, outlining planned policy publications throughout 2025 and into early 2026. The first Discussion Paper in the series (DP24/4) on Admissions & Disclosures and the Market Abuse Regime is now live and aligns closely with the original proposals. The Admissions & Disclosures section specifies requirements pertaining to liability, due diligence, conflicts of interest and reporting, while the Market Abuse section outlines a bespoke regime for cryptoassets based (as far as is feasible) on existing UK MAR.

Property (Digital Assets etc) Bill — The House of Lords has launched a call for evidence regarding the Law Commission’s Property (Digital Assets etc) Bill. The Bill seeks to confirm the existence of a “third” category of personal property into which digital assets could fall, which would give investors increased legal protection.

Digital Gilt Instrument — The Chancellor has announced plans to issue a Digital Gilt Instrument (DGIT) within the Digital Securities Sandbox which opened in September. The PRA has also published a request for information on firms’ current and expected cryptoasset exposures, to inform its calibration of the relevant prudential treatment.

UK AI use — The BoE/FCA’s latest AI survey showed that 75% of firms are already using some form of AI in their operations, up from 53% in 2022. As a result, the Financial Policy Committee is expected to publish an assessment of AI’s impact on financial stability in early 2025. This will likely include possible interactions with the new regime for Critical Third Parties.

UK AI Bill — The Secretary of State for Science, Innovation and Technology recently announced an upcoming AI Bill. Focusing on the regulation of advanced models, the Bill would seek to formalise voluntary agreements made under the Conservative Government. Interestingly, this represents a potential departure from the current ‘hands off’ approach.

AI model training — The government has also issued a new copyright consultation proposing exemptions for text and data mining during AI model training. With an ‘opt out’ model for rightsholders, this appears to favour technology companies over the creative sector. However, a cross — party alliance within the House of Lords is already pushing for amendments.

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: