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Our T+1 journey starts now
On 21 February 2025, the Financial Conduct Authority (FCA) published a speech by Mark Francis (Interim director of wholesale markets sell-side) entitled Our T+1 journey starts now.
Mr Francis warns that firms must now turn their attention to implementing the new T+1 requirement. All firms that participate in wholesale markets are likely to be impacted in some way, but the operational changes and challenges faced will likely differ from firm to firm depending on, among other factors, their business models, the settlement systems they currently utilise and the capacity for those systems to be upgraded. Mr Francis states that if there was only one message that should be taken away from his speech is that firms should start thinking now and put a plan in place as soon as possible to move to T+1 by the deadline.
To meet the new T+1 requirement in time for October 2027 Mr Francis covers the following areas:
Firms should carefully read the contents of the Accelerated Settlement Taskforce’s report now and identify how best they can be implemented for their firm.
Firms should not wait until 2027 to put in place relevant changes. Firms must start planning and putting plans into action from now. Firms should determine what changes are required and how they will need to implement them. One of the key recommendations in the report centres on the operational processes that need to take place to ensure faster settlement, including trade allocations and confirmations as well as the submission of settlement instructions to the Central Securities Depository. Firms are encouraged to consider their own processes and what may need to change to facilitate accelerated settlement.
Firms should consider any budgeting or resourcing needs for executing the plans they make.
Firms must take timely action to put their plans into effect and to maintain momentum for the changes needed throughout the transition period. In considering the timeliness for action, regard must be given to testing. Firms are also encouraged to engage with the Accelerated Settlement Taskforce to raise any questions, to flag any difficulties and to make suggestions on what the group may do to make implementation happen more smoothly.
In terms of the FCA’s approach to support T+1 Mr Francis considers the following areas:
Engagement with firms. The FCA will engage with firms on their T+1 plans as a part of its ongoing supervision. In discussing plans, the FCA would expect firms to cover how they are meeting its expectations on preparedness and how their activities are aligned, or not, with the recommendations as set out in the UK T+1 Code of Conduct. The FCA expects firms to be open with it about their plans and any barriers they may face.
Communication strategy. Among other things the FCA has launched a new T+1 webpage on its website and this will be updated regularly.
Market monitoring. The FCA will monitor the market during and after the transition period to help it gauge firm progress on the move to T+1 and identify any issues that need to be addressed.
Innovation in UK Financial Markets – shortening the settlement cycle
On 20 February 2025, the Bank of England (BoE) published a speech by Sasha Mills (Executive Director, Financial Market Infrastructure) that covers the theme of post trade innovation and is entitled ‘Innovation in UK Financial Markets – shortening the settlement cycle’.
Before getting into some of the specificities, Ms Mills confirmed that the BoE, along with the Financial Conduct Authority and HM Treasury, supports the UK’s move to T+1 as it will deliver various benefits including that a shorter settlement cycle will mean that firms and central counterparties face lower counterparty risks. However, transitioning to T+1 has certain challenges and Ms Mills focuses on adapting to multiple time zones and standardising and automating settlement instructions.
Ms Mills also covers the implementation plan published by the Accelerated Settlement Taskforce which effectively charts out how the UK industry can safely transition to T+1 settlement. And among the report’s ‘highly recommended’ actions is a direction for financial market infrastructures (FMIs) to ensure that their rulebooks are amended to accurately set out the updated T+1-compatible FMI systems and processes. In terms of ‘alignment’ Ms Mills mentions that the UK, EU and Swiss are working towards transitioning on the same date – 11 October 2027.
As a concluding comment Ms Mills states that FMIs and market participants need to do four things:
Carefully read the implementation plan.
Produce their own firm-specific project plans.
Obtain the necessary funding to execute their project plans.
Implement and test the changes to their systems and procedures in accordance with the timelines set out in the report.
PRA publishes Policy Statement on its approach to policy
On 20 February 2025, the Prudential Regulation Authority (PRA) published a Policy Statement, PS3/25, on its approach to policy.
Background
The PRA consulted on its proposals in CP27/23 (published in December 2023). In CP27/23, it explained that its approach to policy is evolving as it takes on wider rule making responsibilities and enhanced accountability requirements, following reforms to the UK financial services regulatory framework introduced through the Financial Services and Markets Act 2023.
Approach to policy
In PS3/25, the PRA provides feedback to responses it received to CP27/23 and also sets out its final Approach to Policy document. The Approach to Policy document sets out how the PRA carries out its role in practice and is designed to help firms and the public understand how it makes policy and their role in that process, as well as aiding accountability to the public and Parliament.
Included in the Approach document is information on:
The PRA’s objectives and regulatory principles.
Its approach to those objectives and regulatory principles.
Its approach to international engagement and collaboration.
The policy cycle.
Delivering a first-rate PRA Rulebook.
Implementation
The final version of the Approach document took effect upon publication.
EU benchmark reform – Council information note
On 19 February 2025, there was published an information note regarding the Council’s position in view of the adoption of the proposal for a Regulation amending Regulation (EU) 2016/1011 as regards the scope of the rules for benchmarks, the use in the Union of benchmarks provided by an administrator located in a third country, and certain reporting requirements.
Delegations were informed of a letter from the Chair of the European Parliament Committee on Economic and Monetary Affairs (Chair) which noted that at a meeting on December 2024 COREPER decided to accept the outcome of the interinstitutional negotiations and that should the Council formally transmit to the European Parliament the proposed Regulation in the form set out in the annex the Chair would recommend to the Plenary that the Council’s position be accepted without amendment, subject to legal-linguistic verification at the European Parliament’s second reading.
Further MiCA delegated acts published in OJ
On 20 February 2025, the following was published in the Official Journal of the EU (OJ):
Commission Delegated Regulation (EU) 2025/303 of 31 October 2024 supplementing Regulation (EU) 2023/1114 of the European Parliament and of the Council with regard to regulatory technical standards specifying the information to be included by certain financial entities in the notification of their intention to provide crypto-asset services.
Commission Implementing Regulation (EU) 2025/304 of 31 October 2024 laying down implementing technical standards for the application of Regulation (EU) 2023/1114 of the European Parliament and of the Council with regard to standard forms, templates and procedures for the notification by certain financial entities of their intention to provide crypto-asset services.
Both the Commission Delegated Regulation and the Commission Implementing Regulation enter into force on the twentieth day following their publication in the OJ (12 March 2025).
Further DORA delegated acts published in OJ
On 20 February 2025, the following was published in the Official Journal of the EU (OJ):
Commission Delegated Regulation (EU) 2025/301 of 23 October 2024 supplementing Regulation (EU) 2022/2554 with regard to regulatory technical standards specifying the content and time limits for the initial notification of, and intermediate and final report on, major ICT-related incidents, and the content of the voluntary notification for significant cyber threats.
Commission Implementing Regulation (EU) 2025/302 of 23 October 2024 laying down implementing technical standards for the application of Regulation (EU) 2022/2554 with regard to the standard forms, templates, and procedures for financial entities to report a major ICT-related incident and to notify a significant cyber threat.
Both the Commission Delegated Regulation and the Commission Implementing Regulation enter into force on the twentieth day following their publication in the OJ (12 March 2025).
ESMA publishes first set of technical standards on different aspects of CSDR Refit
On 20 February 2025, the European Securities and Markets Authority (ESMA) issued draft technical standards on different aspects of the Central Securities Depositories Regulation (CSDR) Refit.
The draft technical standards are in the following final reports:
Draft technical standards amending Regulation (EU) 2017/392 and Regulation (EU) 2017/394 under CSDR on review and evaluation.
CSDR Refit updates Article 22 of the CSDR which establishes a periodic review and evaluation process by requiring ESMA to develop draft regulatory technical standards (RTS) which specify: (i) the information that the central securities depository (CSD) is to provide to its Member State competent authority (NCA) for the purposes of the review and evaluation process; (ii) the information that the NCA is to supply to the relevant authorities referred to in Article 12 of the CSDR, ESMA and, where applicable, the college of supervisors and the competent authority under MiFID II per Article 22(7) of the CSDR (i.e. information on the results, including any remedial action or penalties, of the review and evaluation process); and (iii) the information that the competent authorities of CSDs belonging to groups are to supply one another.
Following the input received through its earlier public consultation, ESMA has maintained its proposal to introduce new reporting requirements but reconsidered its proposal in terms of new requirements for statistical data.
ESMA also proposes to include a one-year implementing period for the changes that are likely to require IT developments and adaptation of their processes by CSDs.
Draft RTS on the Substantial Importance of CSDs under Article 24a(13) of the CSDR.
Paragraph 4 of Article 24 of the CSDR has been deleted and a new Article 24a was inserted by CSDR Refit specifying new requirements to set up mandatory colleges, with the aim of ensuring an effective and efficient coordination of supervision by competent authorities. Article 24a(13) of the CSDR, as amended by CSDR Refit, requires ESMA to develop draft RTS specifying the criteria under which the activities of a CSD in a host Member State could be considered to be of substantial importance for the functioning of the securities markets and the protection of investors in that host Member State.
Given that the draft RTS has implications for the establishment of supervisory colleges, and thus for the concerned authorities, ESMA considered that a public consultation was not needed.
Draft RTS on the information notified by third-country CSDs (TC CSDs).
Article 25(2a) and (13), as well as Article 69(4a) and (4b) of the CSDR, introduce notification requirements for TC CSDs. These notifications requirements apply directly to TC CSDs, without direct involvement of the competent authorities of the TC CSDs.
ESMA previously issued a consultation on the draft RTS and given the feedback has made certain changes to its original proposals. For example, regarding the notification timing and reporting in relation to notary and central maintenance services and settlement services, ESMA has removed the specifications on the notification timing and aligned the reporting period with the letter and the spirit of the provisions introduced by the CSDR Refit. ESMA has also maintained the content of its proposal on general information for all notifications and streamlined the information required in relation to both notary and central maintenance services and to settlement services.
In summary, TC CSDs will be expected to notify information on the number and country of incorporation of the issuers to which they are providing notary services and of the participants to which they are providing central maintenance services, as well as information relating to the number, value, currency, and relevant laws under which the financial instruments are constituted. Certain information items with respect to issuers and participants incorporated outside of the EU can be notified on an aggregate basis.TC CSDs will also be expected to notify information on the number and country of incorporation of the participants located in the EU to which they are providing settlement services, as well as more granular information on settlement instructions for financial instruments constituted under the law of a Member State and on transactions settled by participants incorporated in the EU.
Next steps
The three final reports with the draft technical standards have been submitted to the European Commission for adoption.
FCA and PSR publish feedback statement on big tech and digital wallets
On 19 February 2025, the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) published a feedback statement, FS25/1, on big tech and digital wallets.
Background
The FCA and PSR published a call for information in July 2024 on the benefits and risks that digital wallets bring to people and businesses. This was part of the regulators’ work to assess the potential impact of the growth of digital wallets, in light of their increasing popularity in the UK.
Joint feedback statement
In FS25/1, the FCA and the PSR explain that it is clear from the feedback they received that there is plenty of opportunity in the growth of digital wallets, with some challenges and risks which are already being considered in other jurisdictions such as the EU and the United States.
The report sets out the findings from the regulators’ engagement with industry so that they can be taken into account by the Competition and Markets Authority (CMA) under the Digital Markets, Competition and Consumers Act. The report also highlights some of the opportunities that could be achieved through broader adoption of other digital technologies such as authentication and verification services emerging from the UK Digital Identity and Attributes Trust Framework and the launch of a GOV.UK digital wallet, or introduction of a digital pound.
Key points flagged in the report include:
Digital wallets represent a significant opportunity for innovation and growth.
Digital wallets could present a significant opportunity for non-card forms of payment as they become available, particularly for retail transactions.
However, stakeholder responses have raised potential competition, consumer protection and operational resilience issues.
Next steps
The FCA and PSR plan to work closely with the CMA in relation to issues around competition between digital wallets, and have shared their findings with the CMA in order to avoid regulatory duplication.
The FCA and PSR also intend to engage with HM Treasury as part of their review of the Payment Services and Electronic Money Regulations to ensure the regulatory framework is future-proof.
Finally, the FCA and PSR note that they will continue to embrace digital improvements that benefit consumers, including progressing work on open banking and contactless payments to boost competition and enhance the UK’s growth and competitiveness.
HMT, FCA and BoE confirm support for transition to T+1 settlement
On 19 February 2025, HM Treasury (HMT), the Financial Conduct Authority (FCA) and the Bank of England (BoE) confirmed that they support the industry recommendation to move to T+1 settlement in UK markets by 11 October 2027, as set out in the Accelerated Settlement Taskforce Technical Group’s report published on 6 February 2025.
The Technical Group report recommends 12 ‘critical’ and 26 ‘highly recommended’ actions to facilitate a successful transition to T+1. Many of these recommendations are for market participants and will be implemented through a new ‘T+1 code of conduct’.
Government response to the Technical Group report
For the recommendations in the Technical Group report that relate to the Government, HMT notes in its response that:
The key action for Government is to bring forward secondary legislation to change the current T+2 requirement under the UK Central Securities Depositories Regulation to a T+1 requirement. The Government accepts this recommendation and will introduce legislation making this change when Parliamentary time allows.
The Government also accepts the recommendation that T+1 should come into effect in the UK on 11 October 2027, to give firms time to prepare for the move while preventing a “lengthy period of misalignment with other key jurisdictions”.
Finally, the Government agrees that the Accelerated Settlement Taskforce should (in its final phase of work) oversee implementation of the recommendations until the transition to T+1 has been successfully delivered, and for a short period afterwards to assess the short-term impacts. On that basis, HMT has published updated Terms of Reference setting out updated objectives and a governance structure for the next phase of the work, noting also that relevant industry chairs from the EU and Switzerland will be invited to attend meetings as observers.
FCA statement and new webpage
The FCA has published a statement welcoming the Technical Group report and confirming its support for the transition to T+1 settlement in UK markets. Its chief executive, Nikhil Rathi, commented: “We highlighted how the move to T+1 will make our markets more efficient and support growth in our recent letter to the Prime Minister. We will support industry as they move to T+1 and expect firms to engage and plan early.”
Further information on T+1 settlement is set out on a new FCA webpage, which also includes information on what firms should do.
Next steps
HMT, the FCA and the BoE are calling on industry to engage with the recommendations and start their planning as soon as possible, so that they are ready for 11 October 2027 to be the first day of trading under a T+1 standard.
The FCA notes that firms should determine now what is required to move to a T+1 settlement cycle and plan early to deliver this transition. It flags that as part of its monitoring ahead of implementation, it may have discussions with firms, directly or via trade associations, to understand firm preparedness including how their activities align with the recommendations of the AST.
BoE issues policy statement on fees regime for FMI supervision
On 19 February 2025, the Bank of England (BoE) published a policy statement on its fees regime for financial market infrastructure (FMI) supervision 2024/25.
The policy statement provides feedback to responses to the BoE’s consultation paper on the topic, and also confirms:
The fee rates to meet the BoE’s 2024/25 funding requirement for its FMI supervisory activity and the policy activity that supports it, as permitted by the BoE’s fee-levying powers.
The hourly costs incurred by the BoE for FMI special projects (including staff salaries and overheads) which have increased in line with the Prudential Regulation Authority’s hourly costs for special projects.
The BoE notes that the policy statement is relevant to all FMIs (both UK and incoming) that currently pay FMI supervisory fees to the BoE or are expecting to do so within the 2024/25 fee year.
IOSCO final report on thematic review on technological challenges to effective market surveillance
On 19 February 2025, the International Organization of Securities Commissions (IOSCO) issued a final report setting out its findings following a thematic review of its recommendations from the 2013 report ‘IOSCO Report Technological Challenges to Effective Market Surveillance: Issues and Regulatory Tools’.
In summary, most market authorities have implemented the recommendations and have made significant progress in addressing technological challenges to market surveillance, particularly in more complex markets. However, some issues of concern were identified, noting that some regulators lack the necessary organizational and technical capabilities to conduct effective surveillance of their markets amid rapid technological developments. In addition, most market authorities have not mapped their cross-border surveillance capabilities with regards to the interlinkage between domestic markets and those abroad.
Market surveillance will remain a challenge, and jurisdictions should review the final report, and the issues of concern highlighted in it. Jurisdictions with less-complex markets (for example, single venue, low trading volumes, absence of algorithmic trading and high frequency trading) should periodically review developments in their markets to assess whether changes in market conditions or behaviour require strengthening of market surveillance capability or capacity.
Laurent van Burik, Chair of IOSCO’s Assessment Committee, said: “Market surveillance has made significant improvements over the years in different jurisdictions, yet the challenge of addressing market abuse remains significant for market authorities, especially in the wake of rapid technological advances. IOSCO members should ensure that they have adequate and up-to-date powers, tools, and resources for effective market surveillance.”
Joint ESAs Guidelines on the system for the exchange of information relevant to fit and proper assessments
On 20 November 2024, the European Supervisory Authorities (ESAs) published a final report on joint guidelines on the system established by the ESAs for the exchange of information relevant to the assessment of the fitness and propriety of holders of qualifying holdings, directors and key function holders of financial institutions and financial market participants by competent authorities.
On 17 February 2025, the joint guidelines were published in the official EU languages. Member State competent authorities must notify the respective ESA whether they comply or intend to comply with the joint guidelines, or otherwise with reasons for non-compliance, by 17 April 2025 (two months after the publication of translations of the final joint guidelines in all official EU languages).
ESAs provide a roadmap towards the designation of CTPPs under DORA
On 18 February 2025, the European Supervisory Authorities (ESAs) issued a roadmap to the designation of critical ICT third-party service providers (CTPPs) under the Digital Operational Resilience Act (DORA).
To designate CTPPs this year, the ESAs will perform the following steps:
Collection of the Registers of Information: Member State competent authorities are required to submit to the ESAs, by 30 April 2025, the Registers of Information on ICT third-party arrangements they received from financial entities.
Criticality assessments: The ESAs will perform the criticality assessments mandated by DORA and notify ICT third-party service providers of their classification as critical by July 2025. This notification will start a six-week period during which ICT third-party service providers may object to the assessment with a reasoned statement and relevant supporting information.
Final Designation: After the six-week period, the ESAs will designate CTPPs and start oversight engagement with them.
FCA publishes update on extending SDR to portfolio management
On 14 February 2025, the Financial Conduct Authority (FCA) updated its webpage for consultation paper CP24/8 on extending the Sustainability Disclosure Requirements (SDR) and investment labels regime to portfolio management.
In the update, the FCA flags that it no longer plans to publish a policy statement in Q2 2025, as it wants to take the necessary time to ensure an extension of SDR to portfolio management delivers good outcomes for consumers, is practical for firms and supports growth of the sector.
The FCA notes that it will continue to reflect on the feedback and provide further information in due course.
ESMA consults on draft MiCA guidelines for the criteria on the assessment of knowledge and competence
On 17 February 2025, the European Securities and Markets Authority (ESMA) issued a consultation paper containing draft guidelines for the criteria on the assessment of knowledge and competence under the Markets in Crypto Assets Regulation (MiCA).
Background
Article 81(15) of MiCA provides for ESMA to issue guidelines specifying the criteria for the assessment of knowledge and competence in accordance with paragraph 7 of this Article. A key objective of the guidelines is to ensure a minimum level of knowledge and competence of staff providing advice and information on crypto-assets or crypto-asset services to clients, to enhance investor protection and foster investors’ trust in the crypto-asset markets.
ESMA has developed the draft guidelines by taking as a reference the MiFID II guidelines on the assessment of knowledge and competence which also deal, although under MiFID II, with the knowledge and competence of staff giving advice or information about investment products.
At the same time, certain provisions of the draft guidelines aim to ensure that the criteria for the assessment of knowledge and competence of staff members providing information or advice on crypto assets or crypto-asset services effectively address features and risks specific to crypto-assets markets and services and which are less prominent or absent in traditional financial markets. Therefore, staff giving information or advice on crypto-assets or crypto-asset services should be knowledgeable about the characteristics, risks and features of distributed ledger technology, crypto-asset services and crypto-assets.
The Annex to the draft guidelines includes illustrative examples of how a crypto-asset service provider might apply the draft guidelines.
Next steps
The deadline for comments on the consultation paper is 22 April 2025.
ESMA expects to publish a final report in Q3 2025.
Failure to Prevent Fraud: New guidance for the financial services sector
Following publication of the government’s guidance in November 2025 and ahead of the new offence coming into force on 1 September 2025, UK Finance has published guidance for the financial services sector on failure to prevent fraud (FtPF) which it says “should be taken into account by a supervisory or enforcement agency when considering and/or prosecuting suspected FtPF offences”.
The guidance (which is advisory only) will be of particular interest to those currently involved in activities aimed at establishing a defence of reasonable prevention procedures. Although the guidance is aimed at the financial services sector it may also be of assistance to organisations in other sectors. It comprises three sections:
Part 1: Guidance aimed at assisting firms to understand the offence.
Part 2: Guidance on the types of reasonable prevention procedures that might be proportionate.
Part 3: Guidance on the circumstances in which reasonable prevention procedures would not be reasonable.
We have summarised below some of the key points made in the guidance by UK Finance. We are currently assisting clients with establishing reasonable procedures so please do not hesitate to contact us if a discussion in relation to the guidance would be helpful or if you would like information about our related FtPF events.
Part 1: Understanding the Offence
1. AI: Actions solely attributable to AI or other machine-driven actions (such as trading algorithms) would not give rise to a fraud offence given the fraud offences require intent and (in most cases) dishonesty.
2. Secondary offences: Firms are reminded that secondary offences of aiding, abetting, counselling and procuring, more recently reframed as encouraging and assisting, could give rise to a FtPF offence even if no substantive fraud has been committed but the person would have to have the necessary belief or intention required for the relevant secondary offence to arise.
3. In-scope: For application purposes:
branches are considered to be part of their overall legal entity;
the FtPF offence applies to all firms that meet the relevant criteria for being in scope – not just UK entities;
subsidiary that meets the criteria will be in scope in its own right (as well as being in scope with regards to the actions of its employees in accordance with the principles applied to large parent organisations).
4. Associated persons: Persons that are providing services “to” a firm (such as stationery suppliers) will not be acting “for or on behalf of the firm” and so would not be associated persons but care should be taken over those described by the firm as “suppliers” but which do provide services for and on behalf of the firm (the example given is a third party engaged to perform customer on boarding vetting and due diligence). Where a third party ‘white labels’ a product they are performing services on their own behalf.
5. Acquisitions: Where a firm purchases a new subsidiary or business the firm is not liable for fraud offences committed prior to the time of such purchase.
6. Acting outside of scope of employment: If the employee has acted outside of the role that they are employed to perform without the implied or direct instruction or sanction of their employer, a Court might find them not to be acting in the capacity of an employee (although sanction could be implied e.g. by turning a blind eye to known activity).
7. Services vs products: The guidance includes certain examples of services provided by third parties which would be in scope, such as customer relationship management, and distinguishes these from products where a service may not be provided, such as bilateral counterparty arrangements, over-the-counter transactions or lending facilities / loans.
8. Jurisdiction and UK branches: If there is jurisdiction to prosecute the underlying fraud offence then there will be jurisdiction to prosecute the FtPF offence and so:
FtPF could be committed by persons outside the UK such as non-UK banks if the fraud offence had a UK nexus, regardless of whether or not that non-UK bank has a UK branch or subsidiary;
non-UK banks with UK branches dealing with UK customers and a fraud committed by or intended to benefit a UK branch would be potentially in scope;
an offence committed entirely outside the UK by a non-UK legal entity which was not intended to benefit its UK branch would not have a UK nexus;
non-UK banks do not need to implement procedures for activities conducted entirely outside the UK just because they have a UK branch;
UK headquartered firms will not generally be liable for their overseas employees or subsidiaries in relation to fraud that takes place entirely abroad; and
although organisations could be prosecuted for fraud by a “UK-based employee” (see government guidance), an employee simply visiting the UK on a business trip would not be considered to be “UK-based” for these purposes.
9. Intention to benefit: Generally there would be no benefit if there is no business advantage.Enforcement action for FtPF can only proceed if the prosecution can prove beyond reasonable doubt that a benefit was intended or a positive outcome was virtually certain. There may be reasonable doubt that an intention to benefit existed where the firm can show that the associated person knew or suspected that the firm is likely to have to reimburse an impacted person; the firm is likely to be left with a bad debt (e.g. as a result of a loan); or the firm is likely to suffer reputational damage that adversely impacts on the value of the firm. Deposits held for customers are unlikely to be sufficient to imply an intent to benefit the firm.
10. Interaction with other offences: The guidance notes the interaction between FtPF and other financial crime regimes in the UK such as the failure to prevent the criminal facilitation of tax evasion under section 45(5) of the Criminal Finances Act 2017, the money laundering offences under the Proceeds of Crime Act 2002 and the requirements of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
Part 2: Reasonable Procedures
11. Risk Assessment: Firms may be able to leverage existing fraud risk assessments or may conduct one specific to FtPF. Although detailed knowledge of the interpretation of the fraud offences is not expected, firms should know the specifics of their own services and should use that knowledge to assess the risk of a fraud offence being committed by associated persons. It will not be possible to prevent all fraud but a risk assessment that has the following would be reasonable: (i) areas of risk; (ii) consideration of territorial scope; (iii) assessment of level of risk informed by the effectiveness of controls; (iv) clear assignment of ownership and responsibility; (v) clear documentation including a link between the risk assessment and the prevention procedures; and (vi) review on a periodic basis.
12. Proportionate prevention procedures: Firms may find that risks are sufficiently mitigated through existing controls, but should keep this under review. The reasonableness of prevention procedures should take into account the level of control it is possible to exercise. Contractual controls are a minimum control standard and where it is not possible to achieve this due to disparate negotiating power other means should be used. The guidance provides some examples of steps that can be taken to manage certain risks such as with distributors; the transfer agent relationship; employees and agents; market abuse; and some controls that may already be in place such as whistleblowing procedures, the SM&CR and the 3LOD model.
13. Due diligence: Due diligence should be applied on a risk-sensitive basis when establishing and reviewing third party relationships and documented including where relationships are terminated due to concerns. Professional or regulated status may be indicators of lower risk. Procedures should seek to prevent those that have been exited from being re-onboarded without concerns having been mitigated.
14. Communication and training: Training should be risk-based with general training being supplemented by role-based training or enhanced training for those in higher risk roles. It could be delivered as part of existing training.
15. Monitoring and review: The FCA expects continuous review and enhancement and updates or adjustments are not evidence that procedures were unreasonable. Having a structure and resource for investigations may assist.
16. Top level commitment: Senior management are ultimately responsible and may wish to issue a statement of commitment and ensure the risk of fraud is on the agenda and referenced in accountabilities mapping.
Part 3: Circumstances in which having no prevention procedures may be reasonable
17. Risk Assessment: The guidance references the statement in the government guidance that it will rarely be reasonable not to have even conducted a risk assessment and suggests that firm should show a clear link between any identified risk and its determination that it is not reasonable to have any prevention procedures in place.
18. Examples: The guidance suggests that it may be reasonable for financial services firms not to have prevention procedures in place such as: (i) where there is no UK nexus for a particular area of the business; (ii) for certain types of associated persons such as distributors who are subject to regulatory controls, persons who provide execution only services, single purpose relationships, providers of markets and exchanges, providers of ‘middleware’ platforms; (iii) where the firm does not have grounds to terminate or amend existing contracts and where mitigation by other means is not possible; and (iv) in the context of the legal and regulatory framework regarding UK listed companies and particular transactions.
At the back of the guidance, UK Finance have provided: (1) a decision tree for Part 1; (2) some examples of third party relationships which it considers are not “associated persons”; and (3) twenty illustrations of how the FtPF offence may apply to particular scenarios.
For further information in relation to FtPF, please see our dedicated knowledge hub.
Government consults on extending the UK ETS cap beyond 2030
On 12 February 2025, the UK Emissions Trading Scheme (ETS) Authority launched a consultation on proposals for extending the UK ETS beyond the end of Phase I at midnight on 31 December 2030.
Background
The UK ETS is a cap-and-trade scheme that sets an overall limit on emissions for the sectors covered by the scheme. The downward trajectory of the cap is intended to drive emissions reductions in the covered sectors towards UK-wide climate targets.
Phase I of the ETS runs from 1 January 2021 until 31 December 2030. In December 2023, the long-term pathway for the UK ETS was published, setting out the Authority’s continuing commitment to the long-term future of the UK ETS. The Authority also announced its intention (subject to consultation) to continue the UK ETS beyond 2030 until at least 2050.
Consultation
The Authority is now seeking input on proposals for extending the UK ETS beyond the end of Phase 1, including in particular:
Extending the UK ETS into a second phase from 1 January 2031 onward.
The length of a post-2030 Phase II.
Whether to allow banking of emissions allowances between Phase I and a post-2030 Phase II of the Scheme.
Next steps
The deadline for responses to the consultation is 9 April 2025.
FCA sets out its expectations for authorised fund applications
On 14 February 2025, the Financial Conduct Authority (FCA) published a new document, Authorised fund applications – our expectations.
The document sets out the FCA’s expectations, including useful information on the application process and the level of detail to be provided, for firms applying for collective investment schemes to be authorised as authorised unit trusts, authorised contractual schemes, and authorised open-ended investment companies.
The information set out in the document covers some of the specific questions asked by the FCA in the fund authorisation application forms, as well as some of the main areas where applicants have not provided the necessary information. It sets out the minimum information the FCA requires to determine an application.
In relation to the FCA’s general expectations across all applications, the document includes information on: self-contained documents, product and distribution strategy, capacity to act, consistency of information, the need to provide a complete set of documents, and the inclusion of a solicitor’s certificate.
On application specific expectations, areas covered include: fund names, volatility targets, constraints and limitations in policies, investment strategies, benchmarks, stress testing, model portfolios, ESG-related strategies, dealing arrangements, concentrated portfolio, multiple investment advisers, investor communications due to changes to authorised funds, and Long Term Asset Funds.
The FCA highlights that, if an application does not contain the necessary detail, the FCA is likely to consider it incomplete. Incomplete applications are not subject to the usual time limits and could, the FCA warns, ultimately be refused.
Government publishes Dormant Assets Parliamentary Review
On 14 February 2025, the Department for Culture, Media and Sport published the Dormant Assets Parliamentary Review 2025, covering the period from 24 February 2022 to 12 February 2025.
Background
Under the Dormant Assets Act 2022, the Dormant Assets Scheme is expanded by enabling an authorised reclaim fund to accept certain dormant assets in the insurance and pensions, investment and wealth management, and securities sectors, alongside the banking sector.
The Act includes provisions requiring periodic reviews to be carried out of the Dormant Assets Scheme and the Alternative Scheme, and for the results and conclusions to be set out in a report and laid before Parliament. This is the first of those reviews.
The report
The report explains that the review considered the operation of the Scheme and the Alternative Scheme; the effectiveness of steps taken to reunite assets with their owners; and the use of the power under Section 19 to further expand the Scheme during and after the review period. It also included information about the use made by an authorised reclaim fund of its financial resources, the uses of dormant assets money in England, and the policy and practice relating to the additionality principle.
Key findings set out in the report include:
The Dormant Assets Scheme continues to deliver operational value to industry participants.
The Dormant Assets Scheme continues to prioritise customer protection.
Progress to fully operationalise Scheme expansion has been slower than originally anticipated.
Next steps
The next report will be laid in Parliament by February 2030.
OFSI publishes Financial Services Threat Assessment Report
On 13 February 2025, the Office of Financial Sanctions Implementation (OFSI) published its Financial Services Threat Assessment Report.
The report forms part of a series of sector-specific assessments addressing threats and vulnerabilities relating to UK financial sanctions. These assessments follow OFSI’s commitment under the Economic Crime Plan 2 to publish sectoral sanctions threat assessments, intended to assist stakeholders in key UK sectors as part of a broader risk-based approach to sanctions compliance.
In the report, OFSI outlines its assessment of threats to sanctions compliance involving UK financial services firms since February 2022, with the aim of assisting stakeholders with prioritisation as part of a risk-based approach to compliance.
OFSI notes that it plans to publish further sector-specific assessments in 2025 which are also likely to be relevant to UK financial services firms.
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